South Africa ETF Hopeful on Amid Cabinet Reshuffle

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South African equities and country-specific exchange traded fund maintained their momentum as new President Cyril Ramaphosa' cabinet change up fuels hopes of political and economic changes ahead.

The iShares MSCI South Africa ETF (NYSEArca: EZA) jumped 3.4% Friday.

South African equities, led by the banking sector, and the rand currency firmed Friday amid talks that the new president will announce a his new cabinet after a party meeting over the weekend, Reuters reports.

“The imminent cabinet reshuffle is likely to confirm hopes of a political and economic reversal thus supporting the rand further - at least short term,” Commerzbank analysts said in a note.

Ramaphosa has said he is considering changing the cabinet after replacing Zuma. Former president Zuma’s nine-year rule was marred by a series of scandals, and Ramaphosa has pledged to fight official corruption, starting by swapping out the old guard.

"For this reason, and for Ramaphosa to retain his credible first week in office, a substantial clean-out is required. He cannot be seen to be countenancing the dysfunction of the past by retaining ministers complicit in it," economic political analyst Daniel Silke told Fin24, arguing that the old ministers have either by errors of omission or commission been complicit in the degradation of the state.

South African stocks strengthened on the news, led by the banking sector, which is considered the barometer of South African political and economic sentiment. The banking sector is also the largest component of EZA's portfolio, accounting for 31.7% of the ETF's underlying holdings.

“Banks are looking somewhat better, the industrials, bar one or two exceptions, and the rand hedges for the most part held their own despite the stronger currency,” Independent Securities’ trader Ryan Woods told Reuters.

The stronger rand currency also helps support EZA's gains as the country-specific ETF does not hedge currency risks so a stronger ZAR translates to increased USD-denominated returns.

For more information on the South African markets, visit our South Africa category.

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