South Africa ETFs In Focus As Zuma Resigns

The South African economy suffered extensive political woes under Jacob Zuma’s term. Moreover, the economy has performed very poorly since Zuma took office in 2009.

Zuma announced his resignation Wednesday night, following which market-friendly Deputy President Cyril Ramaphosa took office. This led to a rally in South African stocks and the rand, as the markets now expect more business-friendly reforms from Ramaphosa.

Economic Scenario

Per a Bloomberg article, GDP growth in South Africa has averaged a mere 1.6% since Zuma was elected, very low for an emerging market.  The South African economy grew 0.8% year over year in the third quarter of 2017, easing from an upwardly revised 1.3% expansion in the previous quarter.

The S&P downgraded the country’s credit rating to junk status in November 2017. It lowered South Africa’s local currency credit rating to BB+ from BBB. However, following Zuma’s exit, markets are placing bets on the South African economy, which is finally making a comeback. JSE Africa All Share Index increased 3.7% on Feb 15, 2018, caused by the euphoria following Zuma’s resignation.

The South African rand increased more than 12% against the dollar since Ramaphosa took the realm of the African National Congress. South African stocks have been increasing on the back of a stronger currency, which in turn translates into stronger consumer and business confidence and higher expected economic growth.

What Lies Ahead?

Investors are putting high hopes on Ramaphosa, a former chairman of Africa’s biggest telecom operator MTN Group and expect him to turn around the economy plagued by corruption and mismanagement. Optimists expect Ramaphosa to engage in new ties with foreign miners and usher in new foreign investment by introducing pro-growth reforms.

“He’s going to have [to] come out sounding pretty strong. It’s been a bruising battle to get Zuma out and he needs to show he is the undisputed leader and he has the momentum to get the work going,” Per Hammarlund chief emerging markets strategist at SEB told Reuters.