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

J.P. Morgan has downgraded South African equities to “neutral” due to concerns over economic slowdown and ineffective policy reforms. The brokerage forecasts growth below 2% for the next two years. Geopolitical tensions further complicate the investment landscape, leading to a cautious stance from both domestic and foreign investors.

On March 11, J.P. Morgan downgraded South African equities from “overweight” to “neutral.” This decision arose from growing concerns regarding an economic slowdown and questions about the effectiveness of the country’s policy reforms. The brokerage noted that while South Africa’s investment strategies remain appealing, significant economic growth beyond 2% appears unlikely in the next two years.

Since the 2008-09 global financial crisis, South Africa has struggled to attain meaningful economic growth that would mitigate its issues with inequality and unemployment. South African Reserve Bank Governor Lesetja Kganyago indicated that the region’s growth might approach 2% by 2025. Recently, President Cyril Ramaphosa announced a second wave of reforms aimed at enhancing economic growth by supporting struggling state enterprises and investing in infrastructure.

Despite improvements in power supply and optimism surrounding the ruling Government of National Unity’s (GNU) reform efforts, the business landscape is projected to remain difficult. The brokerage expressed that foreign investors may adopt a cautious approach, while domestic investors must navigate the challenges posed by the GNU’s incomplete reform execution.

Moreover, recent geopolitical tensions, highlighted by U.S. President Donald Trump’s executive order to reduce U.S. financial assistance to South Africa, compound these concerns. The order was motivated by dissatisfaction with South Africa’s land policy and its genocide case against Israel at the International Court of Justice. J.P. Morgan noted that these global dynamics foster uncertainty regarding the performance of South African domestic assets.

Ultimately, while the brokerage favors Emerging European equities within the CEEMEA region, it considers South African stocks preferable to those in the Middle East and North Africa.

In summary, J.P. Morgan’s downgrade of South African equities highlights a cautious outlook based on economic slowdown concerns and the mixed effectiveness of policy reforms. With an expectation that growth may not surpass 2% and geopolitical tensions further complicating the financial landscape, investors are likely to approach South African assets with caution. The forthcoming reform measures implemented by the government may offer some hope, yet the challenges appear substantial.

Original Source: www.cnbcafrica.com