According to the National Treasury forecast, South Africa’s economy is expected to grow 1.5% next year as consumer spending and investment increase and infrastructure projects get under way, report Nasreen Seria and Mike Cohen for Bloomberg. Growth will likely average 2.5% over the coming years. For 2009, the economy is projected to contract 1.9%. (Reasons to keep an eye on South Africa).

Other areas forecast to grow next year include:

• The recent recession has pushed the country’s deficit to 7.6% of GDP in the year through March, but the Treasury expects it to ease in the coming years. The Treasury estimated that consumer spending will expand 0.9% in 2010 after contracting 3.1% this year.

• The government is pessimistic about growth forecasts, citing lower global demand for South African goods in the near term. Exports are forecast to grow 3.8% in 2010 after contracting 19.8% this year, while imports are projected to expand 4.2% following a 20.3% drop in 2009.

On the downside, South Africa still faces challenges:

• South Africa is struggling with an AIDS Pandemic, massive poverty and unrest because of public service cutbacks, comments Danny Schechter for The Market Oracle.

• The country has lost 500,000 jobs, tax revenue has diminished but expenditures are still high.

Schechter sees that the financial crisis stemming from the United States should be examined to ensure that South Africa won’t be caught in the same situation again. He suggests the country needs to turn more inward to attain a self-sufficiency in order to shield the economy against external forces. (How regulations helped  South Africa).

For more information on South Africa, visit our South Africa category.

• iShares MSCI South Africa Index Fund (NYSEArca: EZA): up 43.6% year-to-date

Max Chen contributed to this article.

• The country’s purchasing managers’ index rose the most in 17 months, reports Nasreen Seria of Bloomberg. The seasonally adjusted index increased to 48 last month from 39.3 in August. This is huge for South Africa, because manufacturing production accounts for 14% of its economy.
• The sub-index, which measures business activity, jumped to 49.4 last month from a 38.3 in August.
• New sales orders rose to 50.7 from 39.5 and manufacturers are starting to increase their inventories.
• The pace of job cuts may have also eased with the unemployment sub-index rising to 42.7 from 37.5 in August.
• The nation’s currency has been gaining ground on the dollar, surging 39% since March. The WisdomTree Dreyfus South African Rand (NYSEArca: SZR) is up 33.8% year-to-date.

South African state-owned companies may increase bond sales to finance more than $78.5 billion for infrastructure expansion over the next five years as government revenues were hit hard in the recession, reports Garth Theunissen of Bloomberg.

To grab direct exposure to South Africa, take a look at the iShares MSCI South Africa Index Fund (NYSEArca: EZA), which is up 43.4% year-to-date. (For more ways to get exposure to Africa, go here).

For more stories on South Africa, visit our South Africa category.

Kevin Grewal contributed to this article.

South Africa was not overwhelmed by the financial crisis because of investments that adhered to the country’s high level of self-regulation as well as its limited exposure to experimental or risky asset-backed securities, according to etfexpress.

Ian Hamilton, chief executive of hedge fund administrator Investment Data Service Group, claims that other factors supported the country, as well:

• The banking system did was not exposed to sub-prime mortgages and other poor investment products
• Hedge funds did not have a lot of foreign investors that could have withdrew money in a crisis
• Hedge funds were not highly leveraged

A majority of investors in South Africa rely on institutional investments, especially pension funds, and on long-term investment strategies that use portfolio diversification. The ability to deliver returns while keeping risk at a minimum has raised the South Africa hedge fund industry’s profile in the domestic and foreign markets.

A rising level of investor interest may cause some problems in the future, though: The industry will have to maintain a level of managers with the right amount of talent. Managers will also need to diversify their client base to obviate the potential exodus of cornerstone investors. The industry could also face a medium-term growth trend that will not be as bedazzling as previous years.

• iShares MSCI South Africa Index (NYSEArca: EZA): up 51.8% year-to-date

For more information on South Africa, visit our South Africa category.

The reason Africa is becoming an interesting area for investment, writes Aaron Levitt for Investopedia, is because the continent has a medley of beneficial factors:

• The region has experienced an average 6% growth since 2004
• Africa contains almost 40% of the earth’s total gold reserves and 30% of mineral deposits are in the continent’s ground
• African nations have favorable global trade pacts, which help fund African infrastructure and telecommunications
• Most importantly, countries in the region are becoming more politically stable
  

An interested person may consider investing in the region through ETFs, but there is a caveat. Since Africa is an emerging market that’s still going through a big growth phase, volatility is a risk factor to keep in mind.

South Africa is the largest economy on the continent and it often has a higher weighting in regional ETFs as well as its own ETF:

• iShares MSCI South Africa (NYSEArca: EZA): up 44.6% year-to-date

• WisdomTree Dreyfus South African Rand (NYSEArca: SZR): up 30.2% year-to-date

• SPDR S&P Emerging Middle East & Africa (NYSEArca: GAF): up 40% year-to-date

• Market Vectors Africa (NYSEArca: AFK): up 33.9% year-to-date

For more information on Africa, visit our Africa category.

Max Chen contributed to this article.

The major demographic transition that Africa is following is that as families move up in status in developed areas of Africa, they are having fewer children. This is a trend seen in developed areas of the world – as countries become richer and more developed, they have fewer children per family, explains The Economist.

An emergent African middle class is taking out mortgages and moving into newly built flats, and two children is what they want. Restraining population growth is also seen in developing Asian countries and Latin America.

Will the “familiar” Africa become the “old” Africa?: a place of large families and high fertility, a continent in which societies are under extreme stress and where the young massively outnumber the old, environmentally degraded, ravaged by poverty, hunger, HIV/AIDS and civil war?

If the “demographic dividend” kicks in and the “new” Africa continues to develop, the societies may grow wealthier, they may move from high fertility to low, and their working age population will dominate. A successful cycle of growth will kick in but only if Africa chooses the right policies and takes initiative to solve their current problems.

Demography will decide if the next generation succeeds and changes the course for the future.

• iShares MSCI South Africa (EZA): up 38.3% year-to-date

• SPDR S&P Emerging Middle East & Africa (GAF): up 34.9% year-to-date

• Market Vectors Africa (AFK): up 31.1% year-to-date

For more stories about Africa, visit our Africa category.

South Africa’s GDP has contracted an annualized 3% from the from the first quarter, while growth dropped 6.4%, which officially made this the country’s first recession in 17 years, writes Robb M. Stewart for The Wall Street Journal.

President Jacob Zuma vowed to create 500,000 jobs this year and fight poverty. This statement comes after mining companies and manufacturers cut thousands of jobs and spending. In July, jobless rates inched up to 23.6% in the second quarter as 267,000 became unemployed and 302,000 gave up on looking for work.

Consumer price inflation dropped to 6.7% from 6.9% last month, but still remains above the Central Bank’s target range, reports Robb M. Stewart for The Wall Street Journal. The Reserve Bank reduced its repurchase rate 0.50%, to 7% earlier this month and has a target inflation rate of 3% to 6%.

According to iStockAnalyst, South Africa will eventually pull through to become “one of the big five emerging markets.” Why?

• South Africa has a stable political climate and financial sector
• The government is putting $98 billion in infrastructure
• Increases in the country’s product-based economy
• The country remains a big transport center for the majority of the world’s oil
• South Africa is one of the last to be affected by the global downturn, which means a recovery is only beginning

• iShares MSCI South Africa Index (EZA): up 39.8% year-to-date

For more information on South Africa, visit our South Africa category.

Max Chen contributed to this article.

Shushmul Maheshwari of RNCOS states that banking assets in the South African region are expected to increase by 18.7% between 2009 and 2013.  The reasons include:

• 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.

South Africa, the largest African economy, is grappling with an annualized contraction of 6.4% in the first quarter and a 23.5% unemployment rate, reports Mike Cohen for Bloomberg. What’s going on?

• Finance Minister Pravin Gordhan expects the economy to grow 2.5% to 3.5% annually for several years after the recession ends. Director-general of the National Treasury Lesetja Kganyago thinks  reducing joblessness to a target of 14%, or 2004 levels, may take until to 2014 to achieve.

• Existing government priorities include improving health, education and justice systems, reducing inequality and building new infrastructure.

• Retail sales dropped a less than expected 4.2% in May year-over-year, writes Renee Bonorchis fior bloomberg. Continuous interest rate cuts since December are thought to have contributed in halting the decline in retail sales. The benchmark interest rate currently stands at 7.5%.

• Five of South Africa’s biggest banks reported an increasing amount of bad loans, which is impeding new lending and consumer spending.

• iShares MSCI South Africa Index (EZA): up 24.8% year-to-date

For more information on South Africa, visit our South Africa category.

Max Chen contributed to this article.

In a comparison of regional indexes, going back 18 months, Africa has been doing better than most other regions, remarks Alan Young for Seeking Alpha.

The largest economy in Africa would be South Africa with a 77% total market cap of the MSCI EFM Africa index components. Egypt, Nigeria and Morocco make up 5%-10% each, and smaller investments include Kenya, Mauritius and Tunisia. Combined, these countries make up 10% of the world’s emerging markets market cap.

Economists predict that 15 of the 20 fastest-growing countries for 2009 will be in Africa, reports Stefanie Eschanbacher for fundstrategy. According to the IMF, some African countries may become the “second generation of emerging markets” with macroeconomic performances on par with those of Asia countries’ back in the 1980s.

Africa has the untapped potential for growth and could result in increased income per head with a new middle class. The political and social environment is becoming more stable, and there are institutional reforms that have set interest rates and sound monetary policies. Make no mistake, though: Africa is still a volatile continent and there are risks involved when looking to frontier markets for investment.

Even if commodities like oil are not the money-makers they use to be, soft commodities, such as tea, cocoa and agriculture products, are more stable. African countries are also adopting economic models that focus on their domestic markets.

There is currently no ETF that covers the MSCI Africa index. But an interested investor may look into other ways to include the region in an investment portfolio until one becomes available.

• iShares MSCI South Africa Index (EZA): up 25.7% year-to-date. Biggest sectors: 27% materials (mining), 24% Financials, 16% Telecom.

• Market Vectors Africa ETF (AFK): up 33.8% year-to-date; 27% in South Africa, 19% in Nigeria, 15% in Morocco, 13% in Egypt, and 26% “offshore” in other businesses.

• SPDR S&P Middle East & Africa (GAF): up 23.1% year-to-date; South Africa is 59%, Israel is 26%, Morocco is 8%, Egypt is 5%. Largest sectors include:  Financials 27%, Materials 19% and Health Care 16%.

Max Chen contributed to this article.

It is clear that the emerging market is recovering faster than developed ones, according to ETF Grind. While developed markets are spurred by consumption, emerging markets are driven by investments. ETF Grind provides some funds that an investor may peruse so as to capitalize on the emerging markets over the next few years.

We should note, too, that there are many other ETFs that can provide similar exposure as the world decouples – this is merely a sampling:

• First Trust ISE Glb Engineering and Construction (FLM): up 12.2% year-to-date. The FLM  includes firms that specialize in designing and building infrastructure products. It also includes big-margin engineering and design firms, and focus less on materials and equipment.
• iShares MSCI BRIC Index (BKF): up 53.4% year-to-date. Emerging market funds often include countries that may not decouple as easily, such as South Korea, Mexico and Poland. But BKF provides exposure to the four BRICs emerging markets.
• PowerShares Emerging Markets Infrastructure (PXR): up 55% year-to-date. PXR it invests almost exclusively in firms that build infrastructure, and not in companies that operate and maintain infrastructure. The fund includes emerging market leaders and a few Western companies.
• Claymore/Delta Global Shipping (SEA): up 32.7% year-to-date. SEA invests in companies within the global shipping industry.
• PowerShares DB Commodity Index Tracking (DBC): up 12.7% year-to-date. DBC invests in the six most traded commodities: crude oil, heating oil, aluminum, wheat, gold, and corn.
• iShares S&P Global Materials (MXI): up 30.5% year-to-date. MXI tracks globally active firms that deal in materials. The fund is heavily weighted toward firms situated in developed markets, but they are international conglomerates with operations in emerging markets.
• Emerging Global Shares DJEM Energy Titans (EEO): This brand new fund holds 40 energy firms in emerging markets.  It is weighted toward Russian companies, which make up around one-third of the holdings.
• CurrencyShares Australian Dollar Trust (FXA): up 15% year-to-date. The Australian Dollar is a true “commodity currency” since its value is dependent the country’s natural resource exports.
• Market Vectors Agribusiness ETF (MOO): up 36.2% year-to-date. MOO invests in international agribusinesses.
• WisdomTree Dreyfus Emerging Currency (CEW): up 0.4% in the last week. CEW is new on the scene. It invests in a range of emerging market currencies that could appreciate against the U.S. dollar. It includes currencies such as the Chinese Yuan, Indian Rupee, Brazilian Real and South African Rand.

Emerging markets do have a higher risk profile than those of established foreign and U.S. markets, writes Jim Lowell for MarketWatch. But high inflows into emerging market ETFs warrants another look into this potentially lucrative area. Lowell provides the following areas of interest in the emerging markets:

Brazil. It is a viable and diversified economy that has also has good ties to the global economy.

• iShares MSCI Brazil Index (EWZ): up 64% year-to-date

South Korea and Taiwan can be traded depending on the technology sector.

• iShares MSCI South Korea (EWY): up 33.8% year-to-date
• iShares MSCI Taiwan Index (EWT): up 50.2% year-to-date

India moves along side with the global economy and China is an economic powerhouse in the global stage.

• PowerShares India (PIN): up 57.8% year-to-date
• iShares FTSE/Xinhua China 25 Index (FXI): up 35.9% year-to-date

In Emerging Europe, Russia could be played in relation to the price of oil.

• Market Vectors Russia ETF (RSX): up 97% year-to-date

Israel has strong industries in technology, biotech, and defense.

• iShares MSCI Israel Cap Invest Mkt Index (EIS): up 40.1% year-to-date

South Africa is noted for its metals and mining, or gold industry.

• iShares MSCI South Africa Index (EZA): up 27.6% year-to-date

Read the disclaimer, as Tom Lydon is a board member of Rydex Funds.

For full disclosure, some of Tom Lydon’s clients own shares of MOO.

Max Chen contributed to this article.