South African Investment Opportunities

Includes: EZA, GM, TM
by: Emerging Money

By Tim Seymour

Emerging markets have been one the best places for market participants to find investment opportunities in equities, especially in the retail and banking sectors. In particular in South Africa (NYSEARCA:EZA), firms in these industries have historically been bulletproof. However, shares in these firms have recently been adversely affected by social unrest in the country. As a result of this upheaval in the country, the South African rand has decreased in value over the past month; the rand is now trading at nine to the dollar, compared to around seven 12 months ago. The rand hasn’t been at these levels since the depths of the financial crisis in April 2009. This depreciation has afforded exporters with a huge pricing advantage.

Under normal circumstances, miners would be thriving as a result of the cheaper currency. Unfortunately, as a result of social unrest, mining firms have been unable to take full advantage of these currency fluctuations.

Mining companies are not the only entities finding themselves in the crosshairs of social unrest; truckers in South Africa have also gone on strike. Toyota (NYSE:TM) has been able to resolve a strike at its largest plant in sub-Saharan Africa, while production remains affected at General Motors (NYSE:GM). Furthermore, Royal Dutch Shell (NYSE:RDS.A) is citing trucking strikes as the cause for the company being unable to meet contracts in South Africa.

The epicenter of the social unrest can be traced back to the Lonmin mining strike; the company has set a de facto national precedent after its decision to implement a 22% wage increase. This has resulted in volatility as well as widening social class issues as others now seek similar wage increases. While South African unrest may continue in the near future, this could afford savvy investors buying opportunities in beaten-down equities that are otherwise fundamentally sound.