Throughout last year as it fell 7.5% and through the early part of this year as emerging markets exchange traded funds crumbled, the iShares MSCI South Africa ETF (NYSEArca: EZA) looked like the antithesis of a safe have.
Citing a strengthening rand, one analyst deemed South Africa, Africa’s largest economy, a safe haven.
“I never thought I’d say this, but South Africa has become the new safe haven in the EMEA region,” Societe Generale Head of Emerging Markets Strategy Benoit Anne told Robert Brand of Bloomberg.
The rand is pivotal to the fortunes of South African equities and EZA. As the rand tumbled last year, it worsened South Africa’s current account deficit, contributing to dual headwinds for EZA while prompting South Africa’s entry into the emerging markets motley crew known as the Fragile Five or BIITS. [Broken BIITS: Investors Dodge These EM ETFs]
However, some BIITS ETFs have among the best-performing emerging markets funds this, namely ETFs offering exposure to India and Indonesia. For its part, EZA is up 3.1% in the past month.
There is still work to be done on account deficit if EZA is to deliver further appreciation. UBS believes the rand needs to gain another 10% “to bring the current-account deficit to a sustainable level,” Bloomberg reported. South Africa’s deficit narrowed to a two-year low in the fourth-quarter, but not because of increased exports.