South Africa Struggles As Emerging Markets Anticipate A Rebound

In a world bustling with economic dynamism, South Africa's lustre as an emerging market seems to be waning. The recent 'Investing in the Dragon’s Den – Emerging Markets Outlook 2024' seminar in Johannesburg painted a picture of guarded optimism for global emerging markets, yet underscored a stark underperformance by South Africa in the fiscal theater of 2023.

The seminar, hosted by investment heavyweights Prescient and RisCura, offered an educational platform for local investors, aiming to navigate the turbulent waters of current and future investment landscapes. Glenn Silverman, RisCura's investment strategist, stood as a keynote presenter, acknowledging the struggle of emerging markets over the previous ten years while proposing a more hopeful future scenario for 2024.

One of the key takeaways from Silverman was the intriguing inverse relationship between the US Dollar and emerging markets. A trend emerges: emerging markets tend to dip when the dollar soars, and rally when it recedes. This emphasis on currency movements provided a nuanced insight into the volatility and sensitivity of emerging economies to global fiscal dynamics.

Another critical aspect influencing the underperformance of emerging markets, including South Africa, is the currency weakness pervasive across these economies. This factor has been detrimental, yet Silverman suggests a silver lining in the expected monetary policy actions of the United States. Should the US Federal Reserve cut interest rates – a move anticipated later in the year – a resulting weaker dollar could catalyze growth within emerging markets via a double boon to investment ratings and currency strength.

Amid a global inflation surge post-Covid, both developed and emerging markets have experienced a rise followed by a marked decrease in 2023. As inflationary pressures ease, Silverman anticipates central banks, fueled by the US's lead, will have the leeway to slash interest rates, which could subsequently embolden emerging markets.

However, despite the general outlook for recovery, the performance of four significant emerging market currencies – including the South African rand – tells a story of pronounced devaluation over the decade, with China's yuan as the sole outlier due to its managed nature. Silverman brought into focus the South African inability to keep pace with its emerging market peers. Once accounting for 6% of the MSCI Emerging Market index in 2023, South Africa now clings to a mere 3%, a telling sign of its downturn, especially when measured in US dollars.

On the flip side, India has emerged as a notable outperformer relative to China, commencing around 2021. The re-rating of India, however, positions it on the pricier end of the spectrum, a potentially challenging facet for investors looking for value buys in these markets.

What's more striking, according to Silverman, is the stark divide in performance between Chinese tech stocks and their American counterparts over a comparable period, exemplifying the unique trajectories within the global tech sector.

In conclusion, the seminar revealed both challenges and potential victories for emerging markets. Investors are poised on a fulcrum, balancing cautious restraint with the expectation of possibly profitable days ahead, contingent on the delicate dance of currency valuations and central bank decisions. For South Africa, riding the anticipated upswing may require strategic foresight and a bit of fortitude, as the country grapples to reclaim its ascendant trajectory amid a chorus of resurging emerging economies.