Is it time to get out of South Africa?

Evans Osemwegie, an emerging markets analyst and self-confessed contrarian, says that investors should liquidate their financial holdings in South Africa as the country faces severe challenges.

In a column on Seeking Alpha, Osemwegie, who is MD at Evago Global Capital, believes that the Johannesburg Stock Exchange (JSE) All Share Index will fall to the band between 35,000 and 40,000 within 12 months.

The index reached a record high of 55,355 points in April 2015, but has since receded to 51,300 points, although it traded at nearly 54,500 points as recently as May 2016, before the Brexit vote, which left global markets reeling.

Osemwegie said that the current media attention around president Jacob Zuma is not good for the prospects of the country.

“Despite this, I do not agree with the view that president Zuma is solely responsible for the current ills affecting South Africa, which are likely to get worse after the exit of the UK from the EU,” he said.

The hedge fund manager does not foresee significant longer term consequences for South Africa as a result of Brexit. He said that the country’s problems are mostly from within.

He said that there is mass disenfranchisement within the country which is split into two groups – a rich and affluent South Africa and a poor South Africa.

“Artificial programs of inclusion like the land redistribution and black empowerment programs can only be useful if skills gaps are bridged to help the great majority of the population utilize the opportunities to better themselves, the nation and future generations,” Osemwegie said.

He said that the government is short-sighted – content to maintain the status quo while paying lip service to the concept of deep social and structural reforms.

He said that those areas of the economy that will pay the largest dividends like education, healthcare and skills development have been left far behind.

“The truth is South Africa is really on an interest rate precipice, they are very exposed to external shocks,” Osemwegie said.

“Looking at the South African economy, a casual observer would not really notice anything dramatically amiss, in fact inflation is gradually falling but beneath the surface, the social discontent in the rainbow nation is really palpable,” the analyst said.

“What we are witnessing in South Africa is a very challenging situation, an edifice whose centre has been hollowed out.” He said that while the country make look attractive on the outside, its inside is full of dead wood, ‘that only the slightest of weight placed upon it will see the whole structure crumbling down, especially when coupled with the current political crisis facing the nation’.

“The inevitable crisis coming will be the opportunity that they need to rebuild the economy again from the ground up,” Osemwegie said.

The original and full article was published on Seeking Alpha, and can be found here

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Is it time to get out of South Africa?