Tough Times May Fall On South Africa And ETF As Interest Rates Rise

South Africa may be in for hard times ahead, news that may affect its exchange traded fund (ETF) . The recent run of solid growth may get stunted as higher interest rates are looming, coupled with rising food and fuel costs.

A recent dip in the country’s growth was pinned to the energy constraints due to the power outages which forced mines and industries to shut down, AFP reports. First quarter growth measured 2.1% for the year, down from 5.3% registered in the last quarter of 2007.

The recent .50% increase of the key repo rate brought the total to 12%, halting economic growth and causing consumers to cut back. Banks are also going to increase mortgage rates to 15.5%.

Since 2006, interest rates have gone up nine times by a cumulative 4.5%. Ouch!

Record high prices that show no signs of slowing and growing household debt (it’s 78% of disposable income in the country) could hurt the iShares MSCI South Africa Index (EZA).

The fund had been enjoying a nice stretch for a good portion of this year, thanks to record gold and platinum prices. But year-to-date, it’s now down 8.9%.

Subscribe by RSS Subscribe by Email