South Africa ETF in a Fragile Spot Despite 25% 12-Month Gain

Thanks in large part to rising precious metals prices, the iShares MSCI South Africa ETF (NYSEArca: EZA) has been a solid performer emerging markets single-country exchange traded funds. Year-to-date, the South Africa ETF is higher by 8%, bringing its 12-month gain to 25%.

South African equities have been rallying 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. Concerns about South Africa’s sovereign credit rating are once again in focus.

Last year, 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.

“We have kept to our fiscal commitment — we said we would continue with fiscal consolidation in a careful and balanced way, we said that we would taper off debt, we have kept to that to a large extent,” said Finance Minister Pravin Gordhan in an interview with Bloomberg.

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.