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Investing.com -- On Tuesday, J.P.Morgan downgraded South African equities from "overweight" to "neutral".
The downgrade is due to concerns about the country’s slowing economy and the effectiveness of its policy reforms.
J.P.Morgan expressed concern over global dynamics causing strain in South Africa/U.S. relations. Issues involving expropriation, an International Court of Justice (ICJ) case, and domestic affairs around affirmative action have created uncertainty around the performance of South Africa’s domestic assets.
The brokerage has shown a preference for Emerging European equities within the Central & Eastern Europe, Middle East & Africa (CEEMEA) region. However, it still prefers South African stocks over those from the Middle East and North Africa (MENA).
J.P.Morgan acknowledged that while South Africa’s investment case based on reforms is an attractive starting point, it is unlikely to result in significant economic growth exceeding 2% in the next two years.
The South African government has struggled to deliver high enough economic growth rates to significantly impact inequality and unemployment since the global financial crisis of 2008-09.
J.P.Morgan anticipates that foreign investors will adopt a wait-and-see approach. Meanwhile, domestic investors will have to navigate the imperfect execution of the government’s reform agenda.
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