South African ETFs: Gold vs. Equities
Benzinga | Nov 28, 2012 04:29PM ET
As the fourth-largest producer of gold in the world, the fortunes of the South African economy are often viewed as hitched to the performance of the yellow metal itself. When it comes to ETFs, the correlations between gold and South African equities are not always as intimate as some investors think.
For example, in the past month, the iShares MSCI South Africa Index Fund (EEM ).
Year to date, EZA has lagged the broader MSCI Emerging Markets Index, up 5.46% versus the benchmark rallying 8.03% during the same time period. However, EZA has provided a relative safe haven in the context of Emerging Markets countries in the trailing five year period, as the ETF is down only 7.70% versus the MSCI Emerging Markets Index losing 16.48% during this time frame, said Weisbruch.
The Pros And Cons
As for EZA, there is an easily defined bull/bear case for the fund and South Africa at large. The country is Africa's largest economy and the continent is viewed by many foreign investors as the last great untapped investment frontier. For its part, EZA is diverse at the sector level as financials account for a larger percentage of the ETF's weight than do materials names. Consumer discretionary stocks are just behind materials in the pecking order and telecommunications names receive an allocation north of 13%.
The bear case revolves around the adverse impact labor strife can have and has had on the rand, South Africa's currency. Last month, Standard & Poor's paring South Africa's credit rating by one notch to BBB with a negative outlook as labor tensions in South Africa. Speaking of labor woes, South Africa's 20% unemployment rate cannot be ignored.
(c) 2012 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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