J.P. Morgan downgrades South African equities to “neutral” from “overweight” due to economic slowdown fears and reform effectiveness concerns. Historically, South Africa struggles with high inequality and unemployment. While reforms are underway, uncertainty looms regarding the success of these initiatives and international relations, particularly with the U.S.
J.P. Morgan has revised its rating for South African equities from “overweight” to “neutral” due to concerns regarding an economic slowdown and the impact of national policy reforms. The firm believes that, while the initial investment case based on reforms is promising, it is improbable that the economy will achieve growth rates exceeding 2% over the next two years.
Since the financial crisis of 2008-09, South Africa has struggled to generate sufficient economic growth that can effectively address the pressing issues of inequality and unemployment. In January, South African Reserve Bank Governor Lesetja Kganyago projected that economic growth might approach 2% by 2025.
President Cyril Ramaphosa announced intentions to implement a second phase of reforms aimed at enhancing economic growth by improving state-owned enterprises and investing in infrastructure. Nevertheless, despite some progress in power supply, the business environment remains fraught with difficulties.
J.P. Morgan anticipates that foreign investors will adopt a cautious stance, while domestic investors will have to navigate the challenges posed by the ruling Government of National Unity’s inconsistent execution of its reform plans. Furthermore, external relations, particularly between the U.S. and South Africa, have been strained, complicating the local economic landscape.
The brokerage indicated a preference for Emerging European equities within the CEEMEA region compared to South African stocks, although it views South African equities more favorably than those in the Middle East and North Africa.
J.P. Morgan’s downgrade of South African equities reflects significant concerns about economic growth prospects, limited by government policy reform effectiveness and ongoing external pressures. Despite hints of progress in reforms under President Ramaphosa, the prevailing economic environment is expected to challenge investor confidence. As the situation unfolds, J.P. Morgan remains cautious, suggesting a preference for equities in other emerging markets.
Original Source: www.cnbcafrica.com
