Global credit crunch not making South Africa unattractive

South Africa was still an attractive investment destination for foreign capital, even though it was not immune to the global turmoil in the markets, said analysts.

According to investment managers Stanlib, South Africa was attractive due to its strong credit rating, relative to its peers, and its relative stability.

Stanlib noted that “recently, most emerging market currencies have come under significant pressure, reflecting an increase in global risk aversion as the global economic slowdown spreads. So far this year the rand is the worst performing emerging market currency.”

A high current account deficit has drawn negative attention to the rand, helping it drop by almost 15 percent against the US dollar since the end of 2007. The currency was currently being traded at levels not seen since 2003, when it was still recovering from a crash in 2001.

However, they added that out of 37 credit rated emerging market economies, only China, Korea, Malaysia, Poland and Chile have better credit ratings than South Africa.

“Thus we are still an attractive and stable investment destination,” said Stanlib.

The country’s National Treasury Director-General Lesetja Kganyago said that South Africa had not managed to escape the effects of the prevailing global market turmoil, which had developed out of reckless lending in the US sub-prime sector.

“The road ahead (for markets) continues to look bumpy. South Africa has not been immune to these developments,” said Kganyago.

Kganyago added that a slowdown in consumer demand was a necessary adjustment, given that although growth was fuelled by this over the past four years, it was also inflationary.