South Africa Still Shines Among Emerging Markets 15 comments
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South Africa has been less impacted by the global economic crisis than many other emerging markets have been, a factor that has helped the iShares MSCI South Africa Index Fund (EZA) steadily gain ground in our Sector Momentum Tracker rankings in 2009. EZA held the No. 7 position on our ETF International Momentum Table on April 14, up from the No. 13 spot on January 20. While South Africa’s central bank has initiated a rate-cutting cycle, some analysts still fear that the region has a less attractive risk outlook.
EZA tracks the performance of the South African equity market, as measured by the iShares MSCI South Africa Index. The top two sectors in the index are materials and financials, with 22.72% and 22.97% weightings, respectively. The third-largest sector holding, a 14.77% stake in telecommunications, can be credited to EZA’s top holding. According to a recent Bank of America note, South Africa is second to Taiwan among the highest dividend yielding countries of the 11 largest global emerging markets surveyed, a factor that continues to draw dividend seekers to EZA.
As pirate-infested headlines draw global attention to Africa’s North, upcoming elections are making news in the South. April 21 elections have stirred Jacob Zuma’s opponents to launch a “Stop Zuma” campaign in an attempt to at least keep the A.N.C. from snagging a two-thirds majority in Parliament. Opposition leader Helen Zille recently warned that South Africa could become a “failed state.” Zuma has emphasized government spending as unemployment numbers rise and commodities prices drop. Zuma’s proposed nationalizations have made many investors wary, prompting currency bets in recent months. The next few months could prove critical for South Africa’s economy, which is largely tied to the country’s exports.
EZA’s top component, MTN Group Ltd. (MTONY.PK), recently gained a vote of confidence from Bank of America, which believes that Africa’s largest mobile phone company could increase its dividends. Acquisition talks have kept the mobile provider in the news in recent months—rumors surfaced in early April concerning a possible acquisition of Kenya-based Econet by MTN. The South China Morning Post recently reported, amid late-March takeover rumors, that MTN’s businesses in Iran, Syria and Sudan are valued around $2 billion. The MTN Group composes more than 12% of EZA’s underlying basket, a factor that should keep EZA investors tuned to potential changes for its top component.
Sasol (SSL), EZA’s second-largest component, slid in recent trading as a stronger dollar decreased commodity demands. Sasol is the world’s largest maker of motor fuel from coal, and as investors weigh the threat of rising inventories, the commodities-based company could continue to experience price volatility. Sasol recently withdrew its application for distribution and trading licenses in 35 “future growth areas,” reflecting a decrease in global demand.
While commodities-based components of EZA will hinge on fluctuating values such as exchange rates, other factors also have affected the prices of top holdings. EZA’s third-largest component, Anglo-Gold Ashanti (AU), had to suspend operations April 20, after experiencing its second mining-related death within a week. An investigation has been launched to determine the cause of the incident, and the company reports that measures are being taken to make the mines safer for workers.
EZA’s platinum producers have also struggled in recent weeks, as the demand for the luxury metal wanes with the general commodities market. EZA’s No. 5 holding, Impala Platinum (IMPUY.PK), has recently experienced a drop in value as the price of platinum, used in jewelry and car exhaust devices, continued to fall. Impala Platinum is the world’s second-largest platinum producer—second to EZA’s No. 10 component, Anglo Platinum (AGPPY.PK).
Huge increases in commodities prices in 2008 led to a significant spike in EZA’s chart during the summer months. Sharp commodity price increases caused a statistical bump in the CPI—a factor that could cause low year-over-year inflation numbers in upcoming months. South Africa and EZA could, however, continue to draw dividend investors looking for high-yielding equities and relatively good emerging-market performance.
Will South Africa’s relative strength continue to draw investors to EZA? With its established record and liquid trading volume, EZA will likely continue to be a top choice. As with any emerging-market fund, volatility remains a concern. According to Morningstar, EZA has outperformed its relative index on both a three-month and a one-year comparison. Global demand and internal political factors will shape the South African economy in 2009. For now, many investors will watch and wait.
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This article has 15 comments:
Top EZA component 'MTN’s businesses in Iran, Syria and Sudan are valued around $2 billion.'
and then:
'EZA’s third-largest component, Anglo-Gold Ashanti (AU), had to suspend operations April 20, after experiencing its second mining-related death within a week. An investigation has been launched to determine the cause of the incident, and the company reports that measures are being taken to make the mines safer for workers.'
Between major business dealings with major human rights abusers like Sudan and genocidally bent Iran and unsafe mining conditions that exploit workers desperate for any paying job at all, I think I'll pass.
Its common sense to put money into SA equities before the world cup, but personally, I see better returns in other parts of the world.
On Apr 23 01:10 PM Charlie Bottle wrote:
> Large current account deficits. Low on forex reserves. Currency
> is very risky. Miners which have US$ based prices are a good bet
> but companies focusing on the domestic market are not.
also, keep your eye out for Vodafone Africa, should be launching soon on the Jo'burg stock exchange as a standalone entity & will be looking to be second on EZA after MTN.
The only difference between us and the others is we don't allow their exploration and production. But there is some hope becoming increasingly poor will eventually help us turn this around.
It was a "first world" country until 20 years ago the "world community" led by Reagan and the US put sanctions on the country. Yes, apartheid was bad, but (a) that is their business and (b) many Africans migrating from other African countries into SA did not seem to mind it as much as staying at home and starving because of some US-foreign aid propped-up dictator.
If Americans could only realize how much misery and desperation their tax money creates around the world.
www.nordbruch.org/phot...
On Apr 24 02:53 PM Gedankonomist wrote:
> If South Africa were not controlled by the SA Communist Party aka.
> ANC, it would not be an "emerging economy," it would still be a "first
> world economy."
>
> It was a "first world" country until 20 years ago the "world community"
> led by Reagan and the US put sanctions on the country. Yes, apartheid
> was bad, but (a) that is their business and (b) many Africans migrating
> from other African countries into SA did not seem to mind it as much
> as staying at home and starving because of some US-foreign aid propped-up
> dictator.
>
> If Americans could only realize how much misery and desperation their
> tax money creates around the world.
> If South Africa were not controlled by the SA Communist Party aka.
> ANC, it would not be an "emerging economy," it would still be a "first
> world economy."
>
> It was a "first world" country until 20 years ago the "world community"
> led by Reagan and the US put sanctions on the country. Yes, apartheid
> was bad, but (a) that is their business and (b) many Africans migrating
> from other African countries into SA did not seem to mind it as much
> as staying at home and starving because of some US-foreign aid propped-up
> dictator.
>
> If Americans could only realize how much misery and desperation their
> tax money creates around the world.
Gedankonomist: Before you comment you should get your facts straight.
1. The SA Communist party supports the ANC, but does not "control" it. In fact, the SACP's major complaint is that they have been ignored by policy makers at the head of the ANC. Back in 1994, Mandela did threaten to nationalize "the mines, the big companies, and the banks" but after the IMF and other Washington groups pointed out that such actions would chase away the new capital the country desperately needed for growth, the ANC quickly reversed course and adopted free market economic policies. As a result, GDP growth was humming along at near 5% until the recent US induced recession, whereas it was only around 1 to 2% in the last years of the strictures of apartheid.
2. Under apartheid, South Africa was a "first world economy" for just a tenth of its people.
3. Apartheid was not just bad, it was EVIL.
4. There is more migration from other African countries now than there ever was under apartheid. And most of these migrants come from neighboring Zimbabwe. Are you saying that the US has been secretly propping up the Mugabe regime? Numbers of migrants have come from Nigeria and Somalia. Is oil-rich Nigeria propped up with US government aid? And Somalia? Did you ever see the movie "Black Hawk Down"? There is no love lost between the US and Somalia. In what other African countries is the US "propping up dictators"?
5. As for foreign aid money, the US contributes less to Africa (as a percentage of GDP) than most European countries.
PS: Your pictures are from over 15 years ago, and have no relevance to today's South Africa.
The resource rich countries are holding up better and they always will. And we (North American's) are blessed with a tremendous store of resource wealth that is not being exploited all that aggressively. Possibly for good and strategic reasons too. The environmental agenda and private property rights have conveniently seen to it that our best and most valuable resources stay in the ground until we have used up everyone else stuff. (Just conjecture, of course)
Saudi Arabia is a case in point. They sell it. We buy it. When it's gone it's gone. Won't those deep shale gas and oil deposits here at home look awfully good when they are the last good plays outside of the Arctic?
So I speculate on our own back-yard energy juniors and developing oil and gas plays. It's a long term strategy but I expect a really big fat return in my old age.
Cam
> You are right Mr Killinger,
>
> The resource rich countries are holding up better and they always
> will. And we (North American's) are blessed with a tremendous store
> of resource wealth that is not being exploited all that aggressively.
I think it is arguable whether "The resource rich countries are holding up better and they always will." I think it is also arguable whether North America has the resources, or whether we are willing to exploit them.
When my daughter was in college, she showed me a paper by an Oxford based economist who studied emerging market economies. Specifically, this paper drew a distinction between resource rich countries and those where the people were better educated. It turned out that most of the resource rich countries were in Africa, while the better educated were in Southeast Asia. It also turned out that the better educated countries did much better than the resource rich by such measures as GDP growth and GDP per capita.
What explains this? Well, for one thing, the resource rich became afflicted by something that economist call the "Dutch disease." Say a country suddenly discovers oil. A lot of the resources in the country are turned to developing the oil resources, and other sectors, such as agriculture, are neglected. A few people at the top and a few suppliers benefit from the oil, but most of the people do not. Prices go up because of the new demand from the oil fields and from the beneficiaries. Unless the government is very enlightened (most are not), government spending does not benefit people on the lower end, e.g., through better education. The net result is that the majority of people, the ones at the lower end of the scale, are actually worse off in real terms, because of inflation.
On the other hand, the better educated countries, lacking resources, were able to organize manufacturing industries that were competitive because of lower prevailing wage rates than developing countries. Think of Nigeria, versus say, Taiwan.
The moral of the story -- study hard and work hard and you will be better off than if oil was discovered in your midst. For the US, it means the payoff is in better education for all of our people, to compete in high tech, health care, and other scientific enterprises that increase productivity.
Long HMY & GLF