J.P. Morgan has downgraded South African equities to “neutral” due to economic slowdown concerns and ineffective reforms. Governor Kganyago anticipates growth near 2% by 2025. President Ramaphosa has proposed new reforms, but the operating environment is still daunting for businesses. Foreign investors are likely to remain cautious, influenced by troubled South Africa/U.S. relations.
On March 11, J.P. Morgan downgraded its rating of South African equities from “overweight” to “neutral” due to concerns regarding an economic slowdown and the effectiveness of policy reforms in the country. The brokerage noted, “While South Africa’s investment case on reforms remains an attractive point of departure, it is unlikely to result in meaningful (economic) growth that’s above 2% in the coming two years.”
Since the post-2008-09 global financial crisis, South Africa has struggled to achieve growth rates necessary to alleviate issues related to inequality and high unemployment. In January, Governor Lesetja Kganyago of the South African Reserve Bank indicated that economic growth may approach 2% by 2025.
President Cyril Ramaphosa announced a second wave of reforms aimed at enhancing economic growth through support for struggling state-owned enterprises and infrastructure investments. However, even with recent improvements in power availability and hopes that the ruling Government of National Unity will implement growth-oriented reforms, the business environment remains challenging.
J.P. Morgan anticipates that foreign investors will adopt a cautious approach, while domestic investors will face challenges with the Government’s inconsistent implementation of its reform agenda. The firm expressed concerns regarding strained South Africa/U.S. relations stemming from land policy issues and an ongoing case at the International Court of Justice involving Israel.
The brokerage emphasized their preference for Emerging European equities within the CEEMEA region but stated they favor South African stocks over those from the Middle East and North Africa.
In summary, J.P. Morgan’s downgrade of South African equities reflects growing concerns about the economic slowdown and the uncertain impact of governmental policy reforms. Despite potential reforms aimed at stimulating growth, challenges such as persistent inequality, unemployment, and strained international relations may hinder economic performance in the near term.
Original Source: www.cnbcafrica.com
