Sub-Saharan Africa

South Africa’s ambitious reform agenda will take time to bear fruit. Meanwhile, the country faces a stagflationary squeeze as inflation rises while growth slows. South African stocks, bonds, and currency are all vulnerable.

USD-denominated Emerging Market bonds have been outperforming US corporates for the past year. We don’t think the rally is exhausted yet.

In this chartbook, we look at the balance of payments across DM and EM countries. The US does not fare well, but neither do a few other countries.

The South African government seems to believe that some fiscal retrenchment can stabilize the public debt-to-GDP ratio. But that’s a misconception. The country will need draconian spending cuts to achieve this.

The new national unity government in South Africa creates a geopolitical opportunity that investors should not bet against in the short term. A broad-based rally is likely to unfold relative to other emerging markets. However, structural problems and distrust within the new coalition hold out significant risks over the long run.

In this report, we gauge the outlook for the dollar given client visits in Africa.