One of the imponderables about investing in South Africa is how much you should invest in South Africa. Could a one-share-per-market comparison help us decipher this fundamental choice?
The idea came from fund manager Byron Lotter in the daily Vestact Asset Management newsletter. Lotter quoted a graph by fellow fund manager, PSG’s Schalk Louw, who had tallied South African supermarkets’ market shares after their results were published and discovered, unsurprisingly, that Shoprite had eaten everybody else’s lunch.
But what struck Lotter was that Shoprite’s share price was “only up 80% over five years”, despite management doing such an incredible job. In dollars, allowing for the depreciating rand, the gain shrinks to 59%. American grocery giant Walmart, on the other hand, rose 151% in dollars over the same period.
“My point is that investing in South African equities is tough,” Lotter wrote. “You can pick the right stocks and management can execute brilliantly, but when the economy drags, a team can only do so much.”
But, as he would readily acknowledge, the supermarket aisle contains more complications than advertised.
Start with the businesses, rather than their shares. Shoprite’s latest annual merchandise sales were R270.8bn, about $16bn, and trading profit was R16.2bn, just under $1bn. Walmart recorded revenue of $713bn and operating profit of $29.8bn. Walmart could practically swallow Shoprite as an hors d’oeuvre, but that doesn’t necessarily make it the better-run supermarket.
Shoprite’s trading margin was roughly 6%, against Walmart’s operating margin of 4.2%. Accounting conventions, particularly leases, complicate direct comparisons, but the difference is striking. Over five years Shoprite grew its dollar sales by about 40%, against Walmart’s 28%. Shoprite’s trading profit also grew faster, although the precise comparison depends on accounting adjustments.
Over 15 years, Walmart’s dollar revenue increased 69% against Shoprite’s 55%. But Shoprite’s trading profit rose approximately 68% in dollars, versus Walmart’s operating-profit growth of just 17%. Shoprite has been impressively productive in an economy whose growth frequently resembles an elderly tortoise contemplating retirement.
Investors, however, rewarded Walmart with thunderous applause and Shoprite with a polite golf clap. On approximate dollar share-price returns, Walmart gained 142% over five years, 414% over ten and 527% over fifteen. Shoprite managed just 59%, 50% and 40%. The figures exclude dividends and vary with the exact starting dates, which explains the small difference from Lotter’s calculations.
To test whether this is specifically an American phenomenon, add two more supermarket groups: Britain’s Tesco and China’s Sun Art Retail.
Tesco commands roughly 28% of British grocery sales, but has had a less serene history. An accounting scandal, fierce competition and collapsing profitability were followed by a substantial recovery and the sale of its Thai and Malaysian businesses. Tesco returned around £5bn to shareholders through a special dividend after the disposal.
Its share price rose about 91% in dollars over five years, outperforming Shoprite, and about 120% over ten, but lost roughly 11% over fifteen. Dividends, especially that special payment, considerably improve the actual investment return. Being a dominant supermarket in a rich country doesn’t guarantee exceptional returns. Sometimes it means presiding over a rich country’s supermarket problems.
China supplies a further wrinkle: its largest supermarket operator is Walmart China. For a Chinese-listed comparison, consider Sun Art, operator of the RT-Mart hypermarkets, with sales near $9bn. Its shares lost about 74% in five years, 79% in ten and nearly 90% in fifteen as online competitors and discount retailers carved up its business. The country of listing isn’t everything, and the underlying company clearly does occasionally have to sell something profitably.
Yet the extraordinary market performance of Walmart still demands an explanation. One clue is valuation. Shoprite trades at around 22 times earnings; Walmart at about 43. Give Shoprite Walmart’s multiple, without changing its earnings, and its R333 share price becomes approximately R650. Its five-year dollar price gain would exceed 200%, comfortably beating Walmart’s actual performance.
That doesn’t mean Shoprite deserves Walmart’s valuation, however.
Walmart’s e-commerce, advertising and membership businesses provide additional growth prospects; advertising revenue alone approached $6.4bn last year, up 46%. Investors aren’t irrational to think those activities might eventually be more lucrative than selling baked beans.
But how much of Walmart’s premium reflects the performance of the company, and how much is the abundance of people wanting to own American shares?
America accounted for about 44% of global equity-market capitalisation in 2025 and held $53.6-trillion in retirement assets. Add mutual funds, ETFs and international savings and you have an ocean of investable money. Economists Xavier Gabaix and Ralph Koijen, in their inelastic markets hypothesis, estimate that an extra dollar of demand for US equities can increase aggregate market value by around five dollars.
It’s an empirical estimate, not a law of physics, but it suggests how powerfully investment flows can move valuations. Every buyer, of course, requires a seller. The effect comes when demand grows faster than existing shareholders’ willingness to part with their shares.
South Africa faces the opposite currents: a smaller savings pool, fewer listings, foreign-investor wariness and domestic institutions diversifying offshore. Retirement funds can invest up to 45% internationally. Shoprite can improve profits, yet still struggle to attract buyers prepared to award Walmart’s multiple.
Financial loyalty
The process can feed on itself. Rising US shares attract more savings; high valuations help companies raise capital, buy competitors and reward staff in shares, potentially improving their competitive position further. This is a useful tailwind for businesses, although not a guarantee of future returns for their shareholders.
Americans have fashioned a remarkable financial loyalty programme: the reward for buying shares is that other people want to buy them too.
Until, perhaps, they don’t.
In September, the MSCI USA index traded around 19.4 times forward earnings, against 8.7 for MSCI South Africa. Some of that gap reflects industry mix, growth and country risk. Nevertheless, a high price is wonderful for existing shareholders and potentially uncomfortable for new ones. Paying more for a better business can still be a poor bargain.
So how much should South Africans invest at home? My inclination is that the majority of long-term equity savings belongs internationally, though hardly all in America. South Africans already have their incomes, houses and much of their future expenditure tied to the domestic economy and currency. International shares also provide exposure to industries the JSE barely represents. There is only so much diversification available through banks, miners, insurers and supermarkets.
For someone unconstrained by retirement-fund offshore limits, perhaps 70%–80% international and 20%–30% South African equities is a defensible starting point, subject to circumstances. Money needed soon in rand requires a different approach. Local equities also deserve a place precisely because they’re relatively cheap: Shoprite’s modest valuation could be an opportunity rather than a punishment.
Shoprite’s management deserves recognition, and the stock market’s reluctance to reward that achievement as lavishly as it rewards Walmart does not necessarily make Shoprite an unattractive future investment.
Indeed, it might mean the opposite.
