J.P. Morgan Downgrades South African Equities Amid Economic Concerns

J.P. Morgan downgraded South African equities to “neutral” citing economic slowdown concerns. The brokerage forecasts minimal economic growth over the next two years despite ongoing reforms. Challenges persist due to historical inefficiencies, current geopolitical tensions, and uncertainty surrounding government execution of its reform agenda.

On March 11, J.P. Morgan downgraded South African equities from “overweight” to “neutral” due to apprehensions surrounding the nation’s economic slowdown and the effectiveness of implemented policy reforms. The firm noted that while reforms present an appealing investment opportunity, significant economic growth exceeding 2% appears unlikely over the next two years.

Since the global financial crisis of 2008-09, South Africa has faced challenges in achieving sufficient economic growth needed to address issues of inequality and unemployment. In a recent interview, South African Reserve Bank Governor Lesetja Kganyago suggested that regional economic growth may approach 2% by 2025.

President Cyril Ramaphosa announced plans for a second wave of reforms to enhance economic growth, focusing on strengthening struggling state entities and investing in infrastructure. However, despite recent improvements in power availability and potential optimism surrounding government reforms, many businesses are expected to encounter a challenging operating environment.

According to J.P. Morgan, foreign investors are likely to adopt a wait-and-see approach while domestic investors navigate the government’s inconsistent reform execution. Furthermore, geopolitical tensions, including strained U.S.-South Africa relations stemming from land policy and a case at the International Court of Justice, contribute additional uncertainty to the performance of South African assets.

The brokerage indicated a preference for Emerging European equities within the CEEMEA region, while still favoring South African stocks over those in the MENA region.

In summary, J.P. Morgan’s downgrade of South African equities reflects concerns regarding economic stagnation and policy reform effectiveness. The nation continues to struggle with growth rates insufficient to mitigate inequality. Although forthcoming reforms under President Ramaphosa may offer hope, the prevailing economic climate remains challenging, compounded by external geopolitical factors influencing investor sentiment.

Original Source: www.cnbcafrica.com