- South African mining companies experience their best month in 17 years
- Miners enjoy improved margins due to a surge in prices on raw materials
- However, South Africa’s mining industry remains vulnerable to slowing global growth
The rally in global miners fueled a surge in South Africa’s equities market and country-specific exchange trade fund, with South African mining companies experiencing their best month in 17 years.
The iShares MSCI South Africa ETF (NYSEArca: EZA) gained 5.8% Tuesday and jumped 25.2% since the January lows.
South African markets are being supported by the strengthening miners group. The 16-member FTSE JSE Mining Index rose 24% in February, the most since April 1999, reports Neo Kanyile for Bloomberg.
South African miners have been enjoying improved margins due to a surge in prices on raw materials like iron ore and platinum while the rand currency depreciated against the dollar.
Over the past month, the iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note that tracks copper price movements, rose 3.8% and the ETFS Physical Platinum Shares (NYSEArca: PPLT) increased 7.5%.
The improving commodities market is lifting South African mining stocks from a 11-year low in January that diminished shares of the Top 40 Index to 6.3% from 37% a decade ago.
However, Grant Cullens, chief executive of African Alliance, warned investors from becoming too complacent with the recent rebound as global growth prospects do not warrant excessive optimism.
“We are not convinced that at this stage we are at the beginning of a new supercycle for commodities,” Cullens told Bloomberg. “We don’t believe that anything fundamental has changed which is going to make the sector particularly attractive over the next 12 to 18 months. This is a rally still in a bear market.”
Troye Brady, analyst at Noah Capital Markets Ltd., also mirrored the cautious outlook, arguing that mining stocks only rebounded from oversold levels rather than strengthened from long-term fundamentals.
“The resources index was very, very oversold,” Brady told Bloomberg. “I don’t think the bad news is out of the system yet. It does seem like a bit of a relief rally.”
South Africa’s mining industry remains vulnerable to slowing global growth, notably as Europe and China show tepid expansions.
iShares MSCI South Africa ETF
Max Chen contributed to this article.