New Regime Could Mean Lower Risk For South Africa ETF

The iShares MSCI South Africa ETF (NYSEArca: EZA) is up nearly 8% over the past week with the primary catalyst behind the exchange traded fund’s surge being the resignation of Jacob Zuma as president of one of Africa’s largest economies.

Some analysts and market observers believe the departure of the controversial Zuma will reduce risk for South Africa’s economy and related financial assets.

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.

“The resignation of Jacob Zuma as president of South Africa reduces the risk of policy paralysis,” Fitch Ratings says. “Zuma’s successor, Cyril Ramaphosa, will bring a greater focus to improving governance and strengthening economic and fiscal policy, which is likely to contribute to a recovery in business confidence and growth. Whether this will be sufficient to lead to a significant improvement in the government debt trajectory and trend growth is uncertain.”

The $516.3 million EZA follows the MSCI South Africa 25/50 Index and holds just over 50 stocks. EZA devotes 31.6% of its weight to financial services stocks and over 27% to the consumer discretionary sector. Consumer staples names account for 9% of the ETF’s roster.