Investing in emerging markets like South Africa was still a good investment despite the global financial situation, deputy governor of the SA Reserve Bank, Daniel Mminele, said on Wednesday.
“Emerging markets appear to be adjusting both cyclically and structurally from spectacular levels of growth observed previously to more sustainable levels.
“This should continue to support a steady investment case,” Mminele said in a speech prepared for delivery at the Old Mutual investor and analyst showcase dinner in Cape Town.
He said there were still “challenges and headwinds” in the form of uncertainties around lower growth in key emerging market economies, and continued volatility was likely to be around for some time.
The need to address certain structural problems by emerging economies was beyond question.
The much better fundamental backdrop of emerging markets and continued prospects of higher growth than in advanced economies suggested that it would be a mistake to write off emerging markets.
Historically the case for portfolio diversification into emerging market assets was based on the growth outperformance of emerging market countries.
“Stronger productivity gains called for an appreciation of emerging market currencies, at least in real terms, over the long run,” said Mminele.
“Emerging market economic growth is still outpacing that of the developed world, but the gap is narrowing.”
In its October 2013 World Economic Outlook, the International Monetary Fund projected that growth in emerging markets would slow from 4.9 percent in 2012 to 4.5 percent but increase to 5.1 percent in 2014.
Developed economies were expected to increase from 1.2 percent in 2013 to two percent in 2014.
Speaking about South Africa, Mminele said the financial markets faced “significant challenges” since the second quarter of the year and that the rand had extended a depreciating trend and lost about 12 percent on a trade-weighted basis since March.
“South Africa became increasingly integrated into international financial markets, contributing to the growth and development of its own domestic financial markets and financial infrastructures,” he said.
“The policy and institutional framework similarly remain strong. The strides we have made as a country are borne out by favourable rankings in a number of competitiveness reports.”
Overall, South Africa is ranked 53 out of 148 in the 2013/14 World Economic Forum Global competitiveness report and ranked in the top 15 worldwide in the 2012 Emerging Markets Opportunity Index.
The country is also first in economic competitiveness in the Africa Competitiveness Report and 39 out of 185 countries in the World Bank’s Report on Doing Business.