<\/p>\n
Morgan Stanley is positive on South African assets as headwinds from the Iran war fade, arguing that an approaching end to interest-rate hikes and further credit-rating upgrades will provide support.<\/p>\n
South Africa entered the second half of the year with softer growth, higher inflation and a more hawkish South African Reserve Bank after the US-Israeli attack on Iran triggered a surge in oil prices. While those developments have clouded the short-term outlook, they haven\u2019t fundamentally altered the medium-term investment case, according to economist Andrea Masia.<\/p>\n
\u201cSouth Africa\u2019s growth profile looks more uneven and susceptible to downside risks in the near term,\u201d he said in the bank\u2019s third-quarter macro outlook. \u201cBut beyond the next quarter or two we see tailwinds from an improving supply side, lower inflation, monetary easing and faster credit extension.\u201d<\/p>\n
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Morgan Stanley still expects the central bank to raise rates by a quarter point at its July meeting to 7.25%, which will be the peak of the tightening cycle. However, the recent moderation in energy prices along with inflation approaching what it expects will be a peak of about 4.8% in June have strengthened the case for policymakers to pause instead, it said.<\/p>\n
\u201cOur base case remains for a 25 basis-point hike,\u201d Masia wrote. \u201cBut credible arguments for a hold have emerged.\u201d<\/p>\n
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The investment bank sees rates being lowered to 6.25% by the end of 2027, helping to support better financial conditions.<\/p>\n
Morgan Stanley\u2019s most constructive view is of the domestic bond market.<\/p>\n
It expects improving public finances to help shrink South Africa\u2019s risk premium \u2014 the richer returns that investors demand for holding the nation\u2019s debt. The picture will be brightened by better-than-expected tax revenue generated by higher commodity prices and government debt stabilizing as a share of the economy \u2014 putting South Africa on track for additional credit-rating upgrades.<\/p>\n
Those factors, together with elevated inflation-adjusted interest rates, support a bullish steepening of the yield curve.<\/p>\n
The bank\u2019s optimism was more restrained when it came to the rand.<\/p>\n
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While stronger fiscal fundamentals offer medium-term support, Morgan Stanley sees persistent dollar strength, moderating precious-metal prices and uncertainty surrounding South Africa\u2019s local government elections later this year as potential headwinds that prevent it from being more confident about the currency.<\/p>\n
On the economy, Morgan Stanley expects South African growth to pick up once the current energy-price shock fades, helped by lower inflation, Sarb rate cuts, improving electricity supply and stronger lending. It sees the economy expanding by 1.2% this year and 1.6% in 2027.<\/p>\n
But that\u2019s unlikely to lift South Africa onto a materially faster long-term growth path.<\/p>\n
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Morgan Stanley estimates the economy\u2019s potential growth rate remains capped at about 1.4% because investment is still too weak, limiting its willingness to become a long-term bull on corporate earnings despite an improving cyclical backdrop.<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n<\/p><\/div>\n
#Morgan #Stanley #upbeat #South #African #assets #headwinds<\/p>\n","protected":false},"excerpt":{"rendered":"
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