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‘New dawn’ in SA but country ranks behind likes of Pakistan, Croatia in EM scorecard

Flag map of South Africa

JOHANNESBURG — Things may be looking up in South Africa, but unfortunately the Zuma years have hollowed out institutions and economic potential to such an extent that it may take years to recover. Analysis from Bloomberg reveals that South Africa is bottom of the pile in a scorecard tracking 21 developing countries. Nations that are performing well on this list include the likes of Malaysia and Indonesia. Interestingly, Malaysia is probably the one country that South Africa should be looking to emulate as the Asian Tiger has managed to pull off decades of solid economic growth despite tremendous racial and cultural differences among its own populace, particularly between Malays and the minority Chinese population. Indonesia, meanwhile, also offers hope that high levels of poverty can be dramatically reduced in a few generations. Team Ramaphosa must and should look East for valuable lessons for the South African situation. – Gareth van Zyl

By Yumi Teso, Masaki Kondo and Hannah Dormido

(Bloomberg) – As emerging-market currencies suffered their biggest back-to-back monthly slump since 2016, Asia is outshining the rest by some measures.

Malaysia, the Philippines, Indonesia and China top the scorecard among 21 developing economies in a Bloomberg analysis based on a range of metrics including forecasts for gross domestic product and current account, sovereign ratings as well as stock and bond valuations. South Africa is at the bottom of the pack mainly due to its current account deficit and low foreign reserves.

Mahathir Mohamad, Malaysia’s prime minister, attends a news conference in Petaling Jaya, Malaysia, on Monday, May 28, 2018. Mahathir said he will cancel a proposed multibillion-dollar high-speed railway link to Singapore as the new leader, who returned to power in a surprise election upset this month, seeks to rein in expenditure. Photographer: Joshua Paul/Bloomberg

Malaysia scored at the top amid prospects for higher economic expansion than peers, a healthy current-account surplus and a drop in its real effective exchange rate. For the Philippines and Indonesia, forecasts for robust GDP growth and a drop in their exchange rate valuation offset perceived risks stemming from the nations’ external deficits. They also drew support from the monetary authorities after the Philippine central bank lifted its policy rate in May for the first time since 2014, while its Indonesian counterpart had hiked twice, including at an out-of-cycle meeting on Wednesday to stabilize the currency.

“Asia will probably remain resilient against the rest of emerging markets from here as their economies and external balances are both relatively solid,” said Koji Fukaya, chief executive officer of FPG Securities Co. in Tokyo. “In a risk-on market, people don’t pay too much attention to the fundamentals, but when that starts to fade, people become more selective and Asia is providing relief for some.”

Read also: Emerging markets hotshot Mark Mobius sees tantalising investment opportunities in SA

Higher Treasury yields and a stronger dollar have fanned concern that economies relying on foreign funds will see capital outflows. The MSCI’s emerging-market currency index dropped a combined 3 percent in April and May, the biggest two-month decline since November 2016. Local-currency government bonds in developing economies lost 3.6 percent in the past two months, based on a Bloomberg Barclays index.

To be sure, Malaysia’s standout performance doesn’t take into consideration the impact from policy changes that newly-elected Prime Minister Mahathir Mohamad is implementing, which includes scrapping a goods-and-services tax.

Pakistan and Egypt have seen the biggest gains in their scores compared with the levels at the end of 2016. While Egypt benefited from a credit rating upgrade and higher reserves, Pakistan’s assets are looking cheap after a selloff. The valuations for Indonesian and Turkey markets have also improved following the recent slump.

LATEST END-2016
TOTAL GDP SAFETY VALUATIONS TOTAL GDP SAFETY VALUATIONS
MALAYSIA 2.25 0.88 0.91 0.45 3.54 0.48 0.62 2.45
PHILIPPINES 2.07 1.68 -0.11 0.50 1.19 1.64 0.33 -0.78
INDONESIA 1.39 0.85 -0.77 1.30 -0.23 1.07 -1.12 -0.17
CHINA 1.32 1.57 1.74 -1.99 2.52 1.65 2.12 -1.25
TURKEY 0.99 0.08 -3.37 4.28 -0.43 -0.27 -2.89 2.73
POLAND 0.93 -0.02 0.60 0.35 1.84 -0.21 0.33 1.71
RUSSIA 0.88 -1.46 1.02 1.33 -0.11 -1.30 0.59 0.60
KOREA 0.53 -0.75 2.44 -1.17 1.48 -0.52 2.55 -0.55
PERU 0.45 -0.32 0.34 0.43 -0.29 0.40 -0.24 -0.46
INDIA 0.34 1.81 -0.71 -0.77 0.03 2.06 -0.49 -1.54
THAILAND 0.47 0.00 3.18 -2.71 0.62 -0.14 2.69 -1.94
MEXICO 0.18 -1.14 -0.75 2.07 1.36 -0.94 -0.87 3.17
CHILE -0.31 -0.52 0.26 -0.06 -0.11 -0.77 0.27 0.39
BRAZIL -0.26 -0.91 -1.46 2.10 -1.64 -1.29 -1.21 0.86
COLOMBIA -0.39 -0.89 -0.71 1.21 -0.04 -0.52 -0.77 1.25
EGYPT -0.81 0.45 -2.77 1.52 -3.52 0.10 -4.28 0.66
HUNGARY -1.04 -0.28 -0.45 -0.32 -0.19 -0.50 -0.11 0.42
ROMANIA -2.43 0.13 -1.31 -1.24 0.40 -0.05 -1.08 1.53
CROATIA -2.65 -0.79 -0.73 -1.13 -0.47 -0.57 -1.16 1.26
PAKISTAN -2.75 0.96 -4.00 0.28 -5.50 0.95 -3.20 -3.25
SOUTH AFRICA -3.88 -1.33 -2.35 -0.19 -3.24 -1.25 -2.10 0.11
Here’s how the scorecard is compiled:

Selected economies are either in the MSCI Emerging Markets Index or a Bloomberg Barclays measure tracking EM local-currency government bonds Safety is derived from current-account balances, sovereign credit ratings and international reserves.

Valuations are computed based on real yields, price-to-earnings ratios for MSCI’s equity gauges and real effective exchange rates.

The numbers are Z-scores that measure deviations from the average of the economies covered in the case of GDP, current-account balances, ratings and real yields.

The Z-scores for real effective exchange rates and P/E are based on historical comparisons For reserves, the economies that sufficiently meet the International Monetary Fund’s adequacy ratio get a zero score and those that fall short receive minus 1 GDP growth and current account balances are from economist forecasts for 2018 and 2019 compiled by Bloomberg. Sovereign ratings are from S&P Global. Real effective exchange rates are based on JPMorgan Chase & Co. data.

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