The South Africa exchange traded fund (ETF) iShares MSCI South Africa Index (EZA) could see a decrease after the retail sales growth figures for August are released this week. Currently, EZA is up 24.8% year-to-date.

The figures are expected to show that consumer spending is subsiding, which would back the argument for keeping interest rates the same. Consumer demand is South Africa’s main growth engine, reports Mariam Isa for Business Day. South African shoppers are feeling a little strapped because of interest rates that have increased 3.5 percentage points since June last year, as the country’s standard bank has tried to stop inflation.

Lately, the retail sector doesn’t seem to be the only one taking a hit. Official figures show that household spending dipped to an annualized pace of 5.5% in the second quarter, which is a four-year low. In addition, household debt has climbed steadily for the past few years, hitting a new high of 76.5% of disposable income in the second quarter this year.

However, perhaps EZA will dodge some of the troubles in these areas as the consumer discretionary sector makes up 9.7% of the ETF, and consumer staples account for 5.4%. EZA is most heavily invested in materials-based companies, at 29.7%, followed by financials at 19.8%.


The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.