Mercer on investing in South Africa

South Africa recently announced that it will not retaliate against the new 31 per cent tariffs imposed on its exports to the US. In a joint media briefing, the country's Trade and Foreign Affairs Ministries stated that engaging in reciprocal tariffs with the US before negotiations would be ill-considered. Rich Nuzum, Chief Investment Strategist at Mercer, discussed the implications of the tariff reset on how US investors perceive South Africa. Nuzum explained that despite the recent market correction and the breakdown in US-South Africa political relations, investors are still viewing South Africa as an attractive investment destination. Nuzum highlighted two types of investors interested in South Africa. The first group consists of well-diversified investors who were considering South Africa for its potential in both public and private market investments before the market correction. The second group includes momentum-based investors who may now look to diversify their portfolios into markets like South Africa due to the recent global economic instability. He emphasized that beyond political uncertainties, investors focus on factors such as company earnings, access to labor, business environment friendliness, and valuation when assessing investment destinations. South Africa's appeal lies in its potential for offering diversification in today's volatile market climate. Nuzum acknowledged concerns about the impact of economic growth on company performance, especially amid global recession fears. The recent spike in government bond yields has raised questions about debt servicing capabilities and economic growth prospects, adding to existing financial pressures. Regarding political risk, Nuzum stressed that factors like stability, regulatory progress, business friendliness, and economic momentum influence investor decisions. Improvements in these areas can attract greater investments, even during times of political instability. Nuzum also addressed uncertainties in the US market and the ongoing tariff disputes. He noted that investors are closely monitoring the situation to gauge the long-term impact and whether tariffs are part of a negotiation strategy or a permanent measure. Despite statements asserting tariff permanence, Nuzum emphasized the need for investors to consider all potential outcomes and be prepared for changes in the market. In conclusion, Nuzum expressed optimism about investor interest in South Africa and their ability to navigate challenges in the current economic landscape. He suggested that market corrections could present opportunities for smart investors to capitalize on undervalued assets. As the investment industry adapts to evolving market conditions, strategic decision-making and a focus on fundamentals will be crucial for maximizing returns. As discussions on the tariff reset continue, the resilience and long-term potential of South Africa's market will be closely monitored by investors seeking to optimize their portfolios amidst global uncertainties.