South African tech stock bloodbath over last 5 years

The majority of South African IT and telecommunications companies listed on the Johannesburg stock exchange (JSE) saw a decline in their share price over the last five years.

An analysis of 21 of the largest JSE listed tech companies revealed that only seven increased their share price since 2016.

The worst performer was EOH, which lost 95% of its value amidst corruption and mismanagement challenges.

The best performer was Mustek, whose share price increased 159% over the last five years.

Mustek is one of the largest assemblers and distributors of personal computers and complementary ICT products in South Africa.

Mustek is trading at a price-to-earnings ratio (P/E ratio) of 3, making it attractive to value investors.

Low liquidity may, however, scare off investors concerned that they will not be able to get out of their positions easily.

If one compares the top local tech shares with the largest tech companies in the United States, the poor performance of local companies is clearly illustrated.

Microsoft, Apple, Amazon, Facebook, Netflix, and Google had exceptional growth over the last few years.

The five-year share price performance of these companies is:

• Apple – 476% increase
• Microsoft – 461% increase
• Netflix – 461% increase
• Amazon – 358% increase
• Google – 275% increase
• Facebook – 183% increase

These strong performances show why many investment advisors have advised their clients to invest in offshore tech companies over the past decade.

One of the most prominent advocates of an international investment portfolio is Magnus Heystek, director of Brenthurst Wealth Management.

He wrote on Biznews that around 2010, world markets started settling down and signalled the start of an extraordinary boom of tech companies.

“It was impossible to ignore what was happening in Silicon Valley as well as major developments in the global technology, health care and biotechnology sectors,” he said.

“To become involved in these sectors, one had to recommend an externalisation of South African assets into USD and other currencies,” he said. “SA had no technology funds”.

Heystek’s view proved to be prophetic. Apart from the tremendous gains in US tech stocks, the decline in the rand’s value further increased returns for local investors.

South African tech stocks over 5 years

The table below provides an overview of the performance of South Africa’s largest tech and telecoms companies over the last five years.

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