J.P. Morgan downgraded South African equities to “neutral” due to concerns over economic slowdown and policy reform effectiveness. The bank doubts growth will exceed 2% over the next two years. Despite President Ramaphosa’s reform efforts, operational challenges persist, and geopolitical tensions further complicate the investment climate.
On March 11, J.P. Morgan downgraded South African equities from “overweight” to “neutral” due to growing concerns regarding an economic slowdown and the effectiveness of policy reforms. The brokerage noted that South Africa’s potential for economic growth exceeding 2% in the next two years appears unlikely, despite the attractiveness of its investment case based on reforms.
Since the 2008-09 financial crisis, South Africa has faced challenges in achieving sufficient economic growth to address issues such as inequality and unemployment. In January, Lesetja Kganyago, Governor of the South African Reserve Bank, expressed hopes for economic growth to approach 2% by 2025.
President Cyril Ramaphosa recently announced a second wave of reforms aimed at enhancing economic growth by revitalizing state enterprises and investing in infrastructure. However, despite improvements in power supply and a glimpse of optimism regarding the government’s commitment to reforms, the operational climate for many businesses is expected to remain difficult.
J.P. Morgan anticipates that foreign investors will adopt a cautious stance, while domestic investors must navigate the complexities of the Government of National Unity’s imperfect reform implementation. Additionally, tensions between South Africa and the United States have been exacerbated by U.S. financial aid cuts, attributed to the country’s land policies and its legal actions against Israel at the International Court of Justice.
J.P. Morgan expressed a preference for Emerging European equities within the CEEMEA region, favoring South African stocks over those in the MENA markets.
In summary, J.P. Morgan’s downgrade of South African equities reflects concerns about slowing economic growth and the effectiveness of policy reforms. Despite efforts for improvement by the government and an optimistic outlook from some officials, the prevailing economic environment remains challenging. Global dynamics, particularly the strained relations with the United States, add further uncertainty to the market outlook. As a result, investors are advised to proceed with caution while monitoring the unfolding economic landscape.
Original Source: www.cnbcafrica.com
