J.P. Morgan downgraded South African equities to “neutral” due to concerns regarding an economic slowdown and insufficient policy reforms. The brokerage expressed skepticism about achieving meaningful growth surpassing 2% in the next two years. Local challenges alongside strained U.S.-South Africa relations contribute to an uncertain investment landscape.
J.P. Morgan has downgraded South African equities from “overweight” to “neutral,” expressing concerns regarding an imminent economic slowdown and the effectiveness of the nation’s policy reforms. The brokerage emphasized that despite the appeal of the investment case surrounding reforms, substantial economic growth exceeding 2% within the next two years appears unlikely.
Since the global financial crisis of 2008-09, South Africa has struggled to achieve growth rates sufficient to address inequality and unemployment. The South African Reserve Bank (SARB) Governor, Lesetja Kganyago, indicated in January that economic growth could approach 2% by 2025.
In recent discussions, President Cyril Ramaphosa announced intentions to instigate a second wave of reforms aimed at enhancing economic growth by revitalizing state enterprises and increasing infrastructure investment. Despite enhanced power availability and potential governmental support for reforms, various businesses are expected to face ongoing operational challenges.
J.P. Morgan anticipates a cautious stance from international investors, while domestic investors may grapple with the Government of National Unity’s imperfect reform execution. Furthermore, geopolitical strains between South Africa and the United States—stemming from land policy and legal disputes—are likely to contribute to uncertainty regarding the performance of domestic assets.
The brokerage conveyed a preference for Emerging European equities over others within the Central & Eastern Europe, Middle East & Africa (CEEMEA) region, while still favoring South African stocks over those from the Middle East and North Africa (MENA) region.
In summary, J.P. Morgan’s downgrade of South African equities reflects significant concerns regarding the economic outlook and policy reform efficacy. While some reforms may initially appear promising, sustained growth remains challenging amid geopolitical tensions and ongoing local issues. A cautious investment approach is warranted as both foreign and domestic investors navigate this complex landscape.
Original Source: www.cnbcafrica.com
