An increased number of buyouts and more evidence of feisty profit performances are not stopping the ongoing derating of small-cap stocks on the JSE. Research by the team of alternative investment house Westbrooke’s Special Opportunities Fund shows a drastic and intriguing fall in valuations of small-and mid-cap counters from about November. In the third quarter of 2018 the average p:e of listed companies with a market capitalisation below R10bn was nine and that of those with a capitalisation below R2bn was about seven. By the end of January that gap had widened significantly. The valuations on larger stocks had remained more or less the same, but for smaller-cap counters below R2bn the rating had slunk down to just 5.5. It is clear that political uncertainty — especially in the wake of reckless rhetoric ahead of the election — has spooked investors about prospects for domestically focused counters. No surprise, then, that the JSE’s solid performance has been driven by global groups...

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