There are political and institutional positives, and when stacked up against its peers, the country may be the least dirty shirt on the lineSA’s wild gyrations between optimism and pessimism in the financial markets are remarkable, exhausting and puzzling, all at the same time.
Left field, perhaps, but there are a number of compelling reasons why. Chief among these is the supportive global backdrop. While we are likely to see an environment of tighter global monetary policy in the coming years as global central banks, particularly the US Federal Reserve, look to normalise interest rates and shrink their balance sheets, monetary policy will still ultimately remain accommodative for the foreseeable future.
In this context, SA does not operate in a vacuum. While South Africans tend to be caught up in the day-to-day machinations of our own politics and economics, the reality is that global capital market flows move the needle. SA equities have underperformed cash and inflation over the past five years, and in dollar terms they have gone nowhere for seven. SA investors have capitulated.
Investors in SA have noted the political progress but remain sceptical over whether the moribund economy can catch up. Make no mistake, SA is certainly not without its own issues, but in comparison to the extremely populist policies and own-goals of its peers, each plagued by deep economic issues, ours look less fatal.
But for many, recent developments have simply pulled SA back from the “edge of the cliff” and are not sufficient to affect the long-term impediments to growth. This may be true, but in the short term, this probably won’t dissuade investors. Indeed, in an environment where “neutral is the new good”, SA looks a relatively appealing destination on a risk-reward basis.