South Africa’s financial sector is said to be rebounding nicely, but there are still some risks in the country the exchange traded fund (ETF) investors should be mindful of.
- Banks in the country continue to lend despite the economic meltdown
- The demand for credit by the corporate sector picked up considerably in an attempt to increase production capacity and inventories to meet growing demand
- The demand for credit by the corporate sector has been and is continuing to increase because of an increase in fixed investment and infrastructure spending
- The sector has been protected from effects of the global financial crisis and is expected to enjoy high profitability because it has restrained itself from investing in high-risk securities.
As for the future of the South African financial system, Maheshwari believes that it lies in personal banking and small and medium-sized business loans.
On the flip side, there are some risks to watch out for when investing in Africa, says Ed Cropley for Reuters:
- South Africa’s new president is straddling a line between promises he made to trade unions, leftists and residents of poor townships and promises he made to foreign investors. He’s being closely watched.
- It’s wage negotiation season, which is especially tense this year because inflation is falling and it’s the country’s first recession in 17 years.
- There could be walkouts at state power producer Eskom, which could trigger power outages. Last year, the mining sector was vexed by these outages and production was severely disrupted.
- iShares MSCI South Africa Index (EZA): which is up 26.8% year-to-date; 25% of assets are in the South African financial sector
- SPDR S&P Emerging Middle East & Africa (GAF): which is up 30% year-to-date; 60.4% of assets are focused in South Africa
- Market Vectors Africa ETF (AFK): which is up 29% year-to-date
For more stories on South Africa, visit our South Africa category.
Kevin Grewal contributed to this article.