J.P. Morgan downgrades South African equities from “overweight” to “neutral” due to concerns over economic slowdown, ineffective reforms, and strained international relations. Economic growth is unlikely to exceed 2% in the next two years. The firm suggests a cautious investment approach amid persistent operating challenges.
J.P. Morgan has downgraded South African equities from “overweight” to “neutral,” attributing this decision to concerns about an economic slowdown and ineffective policy reforms. The brokerage indicated that despite the attractiveness of South Africa’s investment case regarding reforms, significant economic growth above 2% is unlikely over the next two years.
Since the global financial crisis of 2008-09, South Africa has struggled to achieve economic growth rates sufficient to address issues of inequality and unemployment. According to SARB Governor Lesetja Kganyago, the economic growth potential for the region may be near 2% by 2025.
President Cyril Ramaphosa recently announced a second wave of reforms aiming to support state companies and enhance infrastructure investment to stimulate growth. However, despite improvements in power availability and the potential for growth through reforms, businesses are expected to face ongoing challenges in the operating environment.
J.P. Morgan predicts that foreign investors will adopt a wait-and-see strategy, as domestic investors navigate the practical implications of the Government of National Unity’s reform initiatives. Additionally, U.S. President Donald Trump’s executive order cutting financial aid to South Africa due to land policy disapproval further complicates the situation, contributing to strained relations.
Overall, J.P. Morgan expressed a preference for Emerging European equities over those in South Africa while still favoring South African equities over those in the MENA region.
J.P. Morgan’s downgrade of South African equities reflects concerns regarding economic growth and policy reform effectiveness. While strategic reforms are planned, the outlook remains challenging due to external and internal factors, including strained international relations. Investors are likely to adopt a cautious approach in response to these uncertainties, favoring European equities while still monitoring South African stocks.
Original Source: www.cnbcafrica.com
