The iShares MSCI South Africa ETF (NYSEArca: EZA) is on a torrid pace to end 2017. The largest exchange traded fund dedicated to South African equities is up more than 8% over the past week, bringing its year-to-date gain to over 30%.
Even with the recent bullishness in South African equities, some market observers believe challenges remain for one of Africa’s largest economies.
“Political uncertainty will persist in South Africa following the election of Cyril Ramaphosa as leader of the African National Congress,” Fitch Ratings says. “The closeness of the result, and the likely challenges in agreeing and implementing changes to existing economic and fiscal settings, suggest that the policy paralysis prior to this week’s national conference may not be quickly resolved.”
Last week, EZA and South African markets surged as investors were optimistic that pro-reform candidate Cyril Ramaphosa secured victory in the ruling ANC’s leadership vote.
South African Deputy President Cyril Ramaphosa was elected leader of the African National Congress Monday in a tight vote, vowing to fight rampant corruption in a scandal-plagued party and to revitalize the economy, report Alexander Winning and Nqobile Dludia for Reuters.
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.
“However, political uncertainty and policy challenges remain significant,” said Fitch. “The division of the party chairmanship and the national presidency could increase inefficiencies in policy making if there is a period of ‘cohabitation’. The top six leadership positions of the ANC are evenly split between those aligned with Ramaphosa and those believed closer to Zuma. The National Executive Committee is also likely to be divided.”
EZA, which has nearly $450 million in assets under management, follows the MSCI South Africa 25/50 Index and holds just over 50 stocks.
“Economic and fiscal policy uncertainty could therefore remain high in 2018. In our most recent Global Economic Outlook, we forecast growth to increase to 1.6% in 2018 and 2.0% in 2019, significantly higher than in the preceding two years, but still lower than the ‘BB’ rating category median,” according to Fitch.
For more information on the South African markets, visit our South Africa category.