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.

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.

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.