The iShares MSCI South Africa ETF (NYSEArca: EZA) is up nearly 16% year-to-date, good for one of the best performances among all single-country emerging markets exchange traded funds and there is more good news for the lone South Africa ETF.
EZA has been accruing that impressive year-to-date showing in the face of lingering concerns that one or more of the major credit ratings agencies would downgrade South Africa’s sovereign debt rating to junk status. Africa’s second-largest economy appears to have dodged that concern, at least for now.
Last week, Standard & Poor’s reiterated a BBB- rating, the lowest investment-grade rating, on South African sovereign debt. In May, Moody’s Investors Service surprised global investors by actually upgrading its rating on South Africa to two levels above junk territory.
The country is a major gold producer as well as being as one of the top two producers of palladium and platinum in the world. 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.
When Standard & Poor’s downgraded Brazil’s sovereign credit rating to junk status in September, market participants immediately began pondering which emerging market would be next to suffer the junk downgrade fate. South Africa was one of the first to be mentioned. However, South African stocks are bucking negative sentiment that might be lingering toward the country’s bonds.
Many still believe South Africa’s economy has its work cut out for it as the government tackles high unemployment and high debt. Credit agency Fitch recently downgraded South Africa to just one notch above speculative-grade status and stated that the dismissal of Nene had “raised more negative than positive questions.”