For anyone interested in South Africa and the EZA ETF, South Africa has a pretty decent import to export relationship, with exports amounting to 76.2 billion while imports amount to 81.9 billion US dollars as of 2007. Coal comprises 5% of said exports while Gold and Platinum make the top of the list at 8 and 14% respectively. Germany, China, and the US, are home to the majority of the businesses dealing with importation into South Africa, giving the country a pan global economy which will arguably strengthen with the devaluation of each of these three countries currencies. As for imports, 13.7% of the countries imports are comprised of petrochemicals, hence like most industrialized nations the price of oil has an effect on business with in South Africa.
While Germany, the US and China, produce most of South Africa's imports, Japan, the US, and China, receive most of South Africa's exports. Given that South Africa, unlike China exports primarily goods used in the industrial and energy sectors, South Africa may be more resistant to dropping consumer confidence in said nations than would countries which rely on a strong demand for cheaply manufactured goods.
South Africa possesses a strong economy relative to the region. With a projected growth rate of at least 3% a year up into 2013, South Africa is a good prospect for those looking to invest in developing markets. Another positive quality of the South African economy lies in the fact that between 2003 and 2007, Real Domestic Demand Growth increased by 7%, indicating a growing local economy, necessary for resilience in the face of such stresses as global recession.
Keeping with the export profile of South Africa, roughly 50% of the holdings represented by this ETF are held in the Industrial Materials Sector. Though this sector has been hit by decreasing demand from growing countries such as China (see Rio Tinto (RTP) Job and Production Cuts) the sector is ultimately a resilient one in that regardless of the worlds economic state, there will always be a need for products which rely on the qualities of Platinum. Platinum is used in one of every five products manufactured an has qualities which make it valuable in the processing of chemicals. Though not readily apparent, Platinum's value is also to a certain extent linked to World Government's attempts to "Go Green". For example Platinum beads are a key component of catalytic converters which reduce the toxicity of auto emissions. It has been reported that 1/3rd of all of the platinum mined in the world today is used for this purpose. It is thus convenient for South Africa that the country's biggest export is Platinum.
This ETF is betting on South Africa's local economy growing, and is to a certain extent aided by the fact that it is doing so. In Africa as a whole, it is more common to have a cellular phone than it is to have a land line. As wealth begins to accumulate within countries such as South Africa, we will see this sector of the Market continue to grow. One need only remember how Carlos Helu Slim became one of the world's richest individuals to understand the value of telecommunications companies in emerging markets. This wager is primarily reflected in the fact that 13.26% of EZA's holdings are in Sasol, a South African internet and telephone service provider.
Another 43.78% of the ETF's holdings represent the Industrial materials sector, keeping in step with the majority of the countries exports. These exports, which include Coal, Gold, and Platinum, are valuable in our economically unsure future. As long as people like electricity, and as long as children "act naughty" there will be a need for coal. Gold is being sold faster than it can be dug out of the ground, and Platinum's demand as an industrial component will rise on Global demand for the detoxifying metal. All of these factors bode well for other major holdings of the ETF such as Impala Platinum (OTCQX:IMPUY), and AngloGold Ashanti (AU), and the MTN Group (OTCPK:MTNOY), which is a South African company specializing in energy and coal.
Needless to say, while things are looking hazy for much of the world's economies, things are looking alright for South Africa, and the iShares ETF, EZA.
Disclosure: I hold EZA long in my kaChing stock portfolio .