ETF XRAY

South African (EZA) ETF Snapshot

The South Africa iShares exchange-traded fund (EZA) is more than just a play on precious metals and commodities and despite some obvious social problems; its economy is in pretty good shape indeed. Its economy is trending upward in many respects.

It enjoys an economic growth rate of 4.5 per cent and inflation has been within the central bank’s 3 to 6 per cent target since 2004. The country’s balance sheet is in good shape; the government budget, in deficit to the tune of 10 per cent of gross domestic product in the early 1990s, is now in balance. Although vulnerability to external shocks remains, reduced levels of external debt and a build-up in foreign exchange reserves make this less likely.

South Africa is the economic powerhouse of Africa, with a gross domestic product (GDP) four times that of its southern African neighbors and comprising around 25% of the entire continent's GDP. The country leads the continent in industrial output (40% of total output) and mineral production (45%) and generates most of Africa's electricity (over 50%). Its major strengths include its physical and economic infrastructure, natural mineral and metal resources, a growing manufacturing sector, and strong growth potential in the tourism, higher value-added manufacturing and service industries.

South African banking standards rank with the best in the world and has long been rated among the top 10 globally. There are 55 locally controlled banks, 12 foreign-controlled banks and five mutual banks. Some of the world's leading institutions have announced their intention to enter the local banking sector through mergers and acquisitions.

But overregulation, poor infrastructure, high unemployment, unequal income distribution and a troublesome HIV/AIDS crisis are all holding back economic progress. Next year a presidential election is scheduled and hopefully a more vibrant two party system will emerge rather than the current one-party dominance. More competition in business and politics can only help lead to a more healthy economy and society.

Posted by Carl Delfeld of the Chartwell ETF Advisor

South African ETF and Economic Brief

The South Africa iShares (EZA) is more than just a play on precious metals and commodities and despite some obvious social problems, its economy is in pretty good shape indeed. EZA lost almost 4% of its value today but its economy is trending upward in many respects.

It enjoys an economic growth rate of 4.5 per cent and inflationhas been within the central bank’s 3 to 6 per cent target since 2004. The Financial Times states that its public finances are in good shape; the government budget, in deficit to the tune of 10 per cent of gross domestic product in the early 1990s, is now in balance. Although vulnerability to external shocks remains, reduced levels of external debt and a build-up in foreign exchange reserves make this less likely.

But overregulation, poor infrastructure, high unemployment, unequal income distribution and a troublesome HIV/AIDS crisis are all holding back economic progress. Next year a presidential election is scheduled and hopefully a more vibrant two party system will emerge rather than the current one-party dominance. More competition in business and politics can only help lead to a more healthy economy and society.

By Carl Delfeld of the Chartwell ETF Advisor