money really matters

By Carl Delfeld of Chartwell ETF&Seeking ETF Alpha

South Africa, surrounded on three sides by water, is a major logistical trading center for oil and other resources and home to aggressive and sophisticated multinationals that are seeking opportunities throughout the continent.

South Africa is home to ports through which OPEC oil is transported to the U.S. and the conduit through which African oil is transported to China and India. South Africa is geographically and strategically placed to mine and transport the world’s most precious commodities. Commonly thought of a gold play, mining is big business in South Africa and therefore it is no surprise that materials production is leading the recovery. Materials, in fact, account for the largest portion (27.53%) of the iShares MSCI South Africa Index Fund (EZA).

The second largest portion (24.54%) of EZA’s holdings might surprise you - financials. As strange as it may seem for an emerging market, South Africa’s banking industry is one of the worlds most stable. Even as banks across the world were crumbling South Africa’s banks barely experienced so much as a hiccup.

EZA has good momentum and has posted a total YTD return 32%. It can be volatile with the top ten holdings of EZA accounting for 62% of its assets. Its currency is strong even as South Africa’s Reserve Bank has decreased interest rates to an all-time low. Since March, the South African rand has surged 36% against the dollar as its deficit shrank to a four year low of 4.3% of GDP in the second quarter. In addition, Political risk has receded somewhat though unemployment remains stubbornly high and crime in urban areas at unacceptable levels.

Perhaps this is why the WisdomTree Dreyfus South African Rand Fund (SZR) has enjoyed consistent growth since its inception. This currency ETF is slightly less volatile than EZA  but still offers nice growth patterns, making it a welcomed long-term holding. The YTD total return on NAV is 23.02% and share price is 25.94%. Not as large as EZA’s returns, but still plenty of room for growth. Another currency ETF with some exposure to the rand is WisdomTree's newest currency ETF, the Emerging Market Currency Fund (CEW), which done well so far.

With precious metals performing better, technical factors pointing to good prospects going forward and many using gold ETFs as a hedge against global financial instability, EZA will get attention as an indirect play on this sector. It is also perhaps the best way to play the ample economic opportunities on the continent. The risk factor is high and EZA can be volatile. Suggest small position and trailing 6% stop loss. For broader exposure to African opportunities and the risks that go with it, consider AFK.
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Indonesia (IF) has been one of this year’s top performers. Indonesian President Susilo Bambang Yudhoyono outlined yesterday his domestic agenda for the next five years, predicting that if re-elected later this year Indonesia would record 7 per cent annual economic growth by 2014.

Analysts are paying close attention to Mr Yudhoyono’s forecasts because he is widely expected to defeat his two rivals in presidential elections to take place in July. Current polls suggest Mr Yudhoyono, whose Democrat Party won the most votes in April’s parliamentary election, will win comfortably in one round but experts believe his lead will narrow once the formal campaign begins next week.

Indonesia last experienced 7 percent economic growth in 1996, during the era of the dictator Suharto and before the 1997/98 Asian financial crisis. Growth last year was 6.1 per cent and 4.4 per cent in the first quarter of this year. Analyst forecasts for 2009 range from around 2 per cent to 4.5 per cent. The Asian Development Bank approved on Wednesday a $1bn standby loan to Indonesia, as the country puts together a $5.5bn (€3.9bn, £3.4bn) package to bolster its ability to navigate the global financial crisis.
The loan came as Bank Indonesia, the central bank, cut its benchmark rate by 25 basis points to a four-year low of 7 per cent to stimulate growth after inflation reached a 17-month low of 6.04 per cent, year-on-year, in May.

Receive more information on Indonesia and Asian and emerging markets by going to Chartwell ETF.