Africa sidesteps the Emerging Markets crisis

Emerging markets (EM) are struggling to finance their economies now that global capital is heading back to the United States, where the gradual ending of cheap money from the US Federal Reserve has brought up interest rates.  Currently, the sharp suits of Sandton, Johannesburg’s banking district, are feeling the pinch, with the rand hit hard.

South African Reserve Bank governor Gill Marcus announced a hike in the repo rate to fight inflation.  Even though the rate rose half a percent to 5.5%, the currency still fell more than 3% the day the measure was announced.  However, while South Africa will feel most of the pain,  the rest of the continent should prosper, according to a new report from Standard Bank.

This is partly because investors are moving away from debt into equities and into developed (DM) markets.  “Africa’s equity markets traded much more closely with DM markets than EM markets during 2013,” says the report.  There is also a rebound expected in emerging market currencies towards the end of 2014.

In addition, the macroeconomic discipline of many African countries is expected to keep inflation under control.  Fiscal policy will continue to be expansive to fund infrastructure projects and will increasingly be met by the eurobond market.

Source: The Africa Report