Emerging market investors neutral on South Africa

 EmailPrint This Post Print This Post

By Kevin Lings

The Global Emerging Markets Strategist from Morgan Stanley in London has provided us with updated data on the latest (as of April 22) benchmark weights for the MSCI Emerging Market countries as well as the weight of South Africa in the average dedicated Emerging Market Fund.

As at 22 April South Africa had a weight of 6.63% in the Emerging Market Index. This is the 7th highest weight in the index after Brazil (15.37%), China (14.23%), Korea (13.41%), Russia (9.69%), and India (7.12%).

According to their estimates, dedicated emerging market investors (funds that only invest in emerging markets) were essentially neutral weighted in South Africa at the end of March. The foreign selling of South African equities in Q1 2008 is mainly attributable to either Hedge Fund investors or what is called Crossover Investors. These are investors who would normally only invest in developed markets but have ventured into emerging markets in recent years due to their out-performance. In contrast, the dedicated emerging market investors actually increased their relative weight in South Africa in March, albeit marginally, after having reduced their weight in December, January and February. Overall Emerging Market Investors are neutral South Africa.

While this sounds reasonably positive, the concern is that many offshore brokers currently have a sell recommendation on South Africa. Morgan Stanley is recommending that investors go 2 percentage points underweight South Africa. This is the second largest underweight recommendation after India, which has a recommended underweight position of 2.25 percentage points. Given that foreign investors own around 25% of the JSE, if emerging market investors actually took their advice the SA equity market would be under significant pressure; which would probably also reflect in a weaker exchange rate.

The main reason for Morgan Stanley’s underweight recommendation is a very poor outlook for the economy (business cycle). In terms of their model SA ranks last among the emerging market data set of 20 countries in terms of the outlook for the business cycle. The other areas of concern are political risk (we currently rank 16 out of 20, with Turkey at number 20), in addition they feel that the market is expensive on a relative basis (ranked 15 out of 20), while the extent of the earnings downward revisions is the worst within the emerging market context (we are current ranked last in terms of earnings revisions).

28-april-sa1.jpg

 

28-april-sa2.jpg

Source: Kevin Lings, Stanlib, April 25, 2008

 

Did you enjoy this posting? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

 

OverSeas Radio Network

Leave a Reply

  

  

  

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Top 100 Financial Blogs

Recent Posts

Charts & Indexes

Gold Price (US$)

Don Coxe’s Weekly Webcast

Podcast – Dow Jones


One minute - every hour - weekdays
(requires Windows Media Player)
newsflashr network
National Debt Clock

Calendar of Posts

April 2008
MTWTFSS
« Mar May »
 123456
78910111213
14151617181920
21222324252627
282930 

Feed the Bull