“South Africa’s growth has underperformed and vulnerabilities have increased considerably,” the IMF said in a report cited by Agence France Presse.
The IMF is forecasting GDP growth of 2% this year and 2.9% next year. Given South Africa’s reputation for political instability and EZA’s reputation as a higher-beta emerging markets ETF, those growth numbers imply significant risk because investors can get exposure to comparable growth rates with any number of developed market ETFs.
Unemployment is officially at 25%, but is closer to 35% including those who have given up looking for work. Around 50 percent of all young people are without a job, according to AFP. Further muddling the bull case for EZA, the IMF went on to say “Unemployment is officially at 25%, but is closer to 35% including those who have given up looking for work. Around 50% of all young people are without a job.”
The lending agency also said South Africa’s economy is vulnerable to shocks. EZA’s recent immunity to slumping metals prices is easily explained. The ETF’s largest holding is media giant Naspers at 13.2% of the fund’s weight. Naspers owns a third of Tencent Holdings, China’s largest Internet company, the shares of which have surged this year.
iShares MSCI South Africa ETF
ETF Trends editorial team contributed to this post.