South Africa recently got a vote of confidence from Fitch in the form of a ratings upgrade, but for the country’s exchange traded fund (ETF) to really perform, more will need to be done.
Mike Cohen for Bloomberg reports that Fitch raised the outlook for South Africa to “stable” from “negative,” due to the strength the country showed coming out of the downturn, but that doesn’t mean it’s 100% back to health. [Telecom ETFs: The Wireless Frontier Is Set In Africa.]
Struggles for the country continue in a few key sectors:
- The South African power utility Eskom has warned of impending shortages as it operates at capacity. It expects a shortfall of 3,000 megawatts (MW) this year – enough to run a sizeable city, reports Gavin du Venage for The National. This has been an ongoing problem in South Africa and has largely contributed to rising platinum prices. [South Africa ETF: 10 Things to Watch.]
- Miriam Sa for The Wall Street Journal reports that South Africa’s factory activity stumbled slightly in December, probably due to the slowing effect of public holidays, suggesting another interest rate cut this year isn’t out of the question. Manufacturing is hugely important in South Africa – it’s the economy’s second-largest sector and contracted sharply in the third quarter of this year.
iShares MSCI South Africa (NYSEArca: EZA) has been decent in the last year, gaining nearly 30%, before stumbling to a 5% loss in the last month. Is Fitch’s upgrade enough to get it back on track? The World Cup bloom may be off the rose, but if the government can really stamp out corruption and the country’s infrastructure gets into better working order, maybe another upgrade won’t be far off.
Tisha Guerrero 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.