Quantifying South Africa’s Revenue Footprint 

Satrix has launched the Satrix SA Inc AMETF, a significant step in South African equity investing. The fund gives investors exposure to companies that generate a substantial portion of their revenue locally, linking them directly to the country’s economic cycle. With traditional indices increasingly dominated by dual-listed and global companies, the Satrix SA Inc AMETF provides a unique allocation to the domestic growth engine, including financials, retail, telecoms and industrials – sectors closely tied to local consumption, infrastructure development and policy reform.  

It offers a simple, cost-effective way to express a positive view on South Africa’s economic outlook and serves as a complementary building block within a broader South African equity allocation. Holding the fund increases domestic revenue exposure, strengthens portfolio diversification relative to rand-hedge heavy benchmarks, and allows direct participation in local macroeconomic recovery themes. 

Reclaiming Domestic Economic Exposure  

South African equity benchmarks have evolved, with index harmonisation and the adoption of SWIX methodologies better reflecting investable market capitalisation. Yet, an important question remains for investors: How much of a typical South African equity allocation is truly sensitive to the country’s economic cycle?

Being listed on the JSE does not automatically mean high sensitivity to South African GDP growth, domestic credit cycles, consumer confidence, local infrastructure, and fiscal and monetary policy shifts. Market-cap weighting reflects company size, not necessarily economic exposure. As companies expand offshore, diversify revenue streams or increase foreign earnings contribution, the economic linkage of a standard SA equity allocation to domestic growth can become diluted. Inward-listed companies in South Africa also tend to contribute to the dilution of smaller, locally focused corporations.

The Satrix SA Inc AMETF takes a different approach. The fund focuses specifically on companies that generate a meaningful proportion of their revenue locally, increasing direct exposure to South Africa’s economic dynamics. The table below illustrates the proportion of local revenue in each index. 

The above highlights the Satrix SA Inc index that this fund follows, showing its strong alignment with domestic economic conditions, with 82% in local revenues, showing earnings that are directly tied to South African consumption, credit and investment cycles. The Top 40 and CAPI sitting around 40–44% SA revenue illustrate how a broad SA equity allocation can, in effect, have less than half of its earnings linked to the local economy. If an investor wants an intentional shift towards SA Inc exposure, this fund is a fit, as it materially shifts the balance. 

Portfolio Construction  

The Satrix SA Inc AMETF is not designed to replace traditional SA equity allocations, but to refine them.
It can serve as a complementary building block that intentionally enhances domestic revenue exposure within broader portfolios.  

The ETF tracks a custom-built index comprising the 50 largest and most liquid JSE-listed companies earning more than 25% of their revenue within South Africa. Large- and mid-cap stocks are considered first, after which the largest and most liquid remaining companies are considered, provided they earn at least 50% of their earnings locally.

Each stock’s weight in this index is determined by a multiplying factor that is applied to the stock’s weight in the FTSE/JSE Capped All Share Index (CAPI). This multiplying factor is determined by the company’s proportion of local revenues.

The stocks in the fund are also capped at 10%, to determine the final weights of the included stocks. The fund does not target specific sector tilts nor consider single stock exposures beyond the 10% capping. Stocks that are deemed to be sufficiently similar (e.g. dual-listed structures) and combined reach the upper bound are jointly capped.

The below illustrates the differences in sector weights between the Satrix SA Inc index and a broader index like the CAPI: 

The SA Inc Index is significantly overweight financials, reflecting the dominant role that domestically focused banks and insurers play in the South African economy. By gaining exposure to the SA Inc Index, investors gain greater exposure to sectors that are more directly sensitive to local economic cycles, especially financials and consumer discretionary, thereby potentially benefiting more directly from South Africa’s economic momentum.

There is also a significantly lower weight in dual-listed stocks in the mining and tobacco sectors, while the index does not include technology stocks, as these companies generate much of their revenue outside South Africa. The sector exposures in the SA Inc fund enhance its purity of domestic exposure, in line with the fund’s strategic objective. 

Valuations: Pricing in too much Pessimism? 

Over a 20-year period, the CAPI has generally traded at a long-term price-to-earnings (PE) ratio of between 14-16 times, with cyclical troughs typically between 9–11 times and peaks around 16-20 times. This range of valuations reflects commodity cycles, global liquidity conditions, South Africa’s domestic political risk episodes, rate cycles and earnings volatility through the years. The chart below shows the Satrix SA Inc Index’s PE ratio, over time:

Given that global markets have traded at structurally higher multiples (often 18 – 22 times), the domestic earnings stream has been priced at a significant relative discount, particularly within the SA Inc theme, as shown in Figure 3. Even relative to the broader local market, it is well below broad market exposure multiples. During periods of domestic stress, the broader index has often been cushioned by global revenue earners, while domestic-focused stocks (the SA Inc component) have tended to de-rate more aggressively. This implies that the domestic earnings stream has historically carried a higher embedded risk premium.

The structural discount of SA Inc is not about whether it is cheap versus its own history, but whether it continues to trade at a persistent discount to the broad market (CAPI), and whether that discount is justified. SA Inc continues to trade at a structural discount to the broad market despite signs of domestic stabilisation and recent re-rating. The valuation gap relative to the CAPI remains intact.

The opportunity within SA Inc is not predicated on extreme undervaluation relative to its own history, rather, it rests on whether the structural discount applied to domestic earnings relative to the broader market remains proportionate to evolving fundamentals. If the domestic risk premium continues to compress, valuation convergence may become an incremental source of return.

The 2022–2023 period in Figure 3 saw SA Inc trading near 8-9 times levels, typically associated with crisis conditions, yet corporate balance sheets remained relatively resilient while banks were well capitalised. In that same period, inflation had been moderate, while retail and industrial earnings did not collapse structurally and load shedding dynamics had improved relative to peak crisis. Now at a PE of 13-14 times, SA Inc is recovering towards its long-term mean but not yet pricing in a full domestic recovery cycle and is trading at a discount to many global markets including the local broader market.

The Strategic Narrative for SA Inc

Domestic equities often trade at a structural risk premium, depicted by figure 3 due to currency volatility, fiscal risks, political uncertainty and structural growth constraints. If local fiscal discipline stabilises, energy reforms continue, inflation remains anchored, while rates also begin to ease, then the required equity risk premium may compress meaning that valuation re-ratings could contribute meaningfully to returns, not just earnings growth.

With the Satrix SA Inc fund having 82% local revenue exposure, shown in Figure 1, and being positively correlated to domestic growth, with greater sensitivity to policy normalisation, the fund is directly positioned to benefit from a re-rating of the domestic risk premium.

Over the past decade, domestic-facing equities have traded at a persistent valuation discount relative to both global markets and parts of the broader South African equity universe. The SA Inc index experienced significant de-rating during recent periods of macro stress, trading near crisis-level multiples despite earnings resilience. While valuations have begun normalising, current levels remain around long-term averages rather than euphoric extremes, suggesting that the domestic risk premium remains embedded. Should macro stability continue to improve, further multiple compression of this risk premium may provide incremental return support. 

Disclaimer

_{Satrix consists of the following authorised Financial Services Providers: Satrix Managers (RF) (Pty) Ltd and Satrix Investments (Pty) Ltd. The information does not constitute financial advice. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.} 

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