The South African country-specific ETF fund climbed Friday as the rand currency strengthened.
The iShares MSCI South Africa ETF (NYSEArca: EZA) advanced 3.6% Friday after rising 2.8% Thursday.
Supporting South African equities, the rand currency strengthened against the U.S. dollar as the USD dipped 1.3% to ZAR13.98. The rand is beginning to pick up against the greenback after hitting a one-year low of 14.47 against the dollar earlier this week.
“Basically the dollar weakness is making us look good,” currency strategist at IG Markets Shaun Murison, told Reuters. “The dollar has been on the back foot following the re-emergence of concerns relating to Russia’s involvement in U.S. elections.”
Nevertheless, traders remain cautious on South Africa’s markets ahead of credit ratings reviews on November 24.
“With investor jitters rising ahead of South Africa rating review by S&P Global and Moody’s agencies next week, further downside could be on the cards,” Lukman Otunuga, research analyst at FXTM, said in a note.
Observers warned that a downgrade on the local-currency rating by both agencies could trigger a sell-off of up to $12 billion in the country’s bonds and heavy selling in the rand currency, potentially reversing recent gains in the equities market.
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Given current global market risks, South African investors are shying away from riskier equity exposure.
“When asked how the current uncertainty surrounding international politics and world events affected their investments, almost two-thirds (64%) of South African wealth investors said they don’t want to take on as much risk now and almost half (46%) said they are holding more money in cash now than before,” Doug Abbott, head of business development at Schroders South Africa, said told BusinessTech.
South African investors, though, remain optimistic about the future outlook. Despite the political and financial instability currently facing South Africa, local investors project average annual total return of 13.3%, compared to the global average return of 10.2%.
For more information on the South African markets, visit our South Africa category.