Why South Africa could be on the brink of a Brazilian-type economic renaissance
A corruption scandal that led to a political transition and economic reforms was the recipe for a rally in Brazilian assets, and South Africa is at a similar turning point, according to an interview in businesstech.co.za
Michael Bolliger, the head of emerging-market asset allocation at UBS Wealth Management, says South Africa’s new leader and the corruption charges lodged against former President Jacob Zuma on Friday are setting the stage for a repeat of what happened in Brazil.
The stock market there has more than doubled and the real has surged 18 per cent since early January 2016, when investors began betting on a change in government.
Traders should “act swiftly” and stay invested in South African assets to fully benefit from the expected steep jump in prices, according to the $2.4 trillion investment firm.
In Brazil, that rally preceded an acceleration in economic growth and improved fundamentals as President Michel Temer took steps to contain public spending.
Of course, it hasn’t been entirely smooth cruising for Temer, whose approval rating is the lowest among the leaders of Latin America’s major economies.
His failure to push a pension overhaul through Congress drew sovereign downgrades deeper into junk territory.
South African President Cyril Ramaphosa could face similar political challenges as he looks to bolster an economy burdened by a budget deficit and mounting debt load.
He may have a slightly easier time as the urgency for more austerity has been eased by changes to the next budget and a looser monetary policy.
South African equities and bonds are the country’s most attractive assets, according to Bolliger. He expects the rand to appreciate almost 9 percent to 11 per dollar.
