- EZA gives U.S. investors the chance to invest directly in South African equities through a U.S.-listed, USD-denominated ETF.
- Unfortunately, South African equities look expensive. While the USD/ZAR exchange rate is probably significantly overvalued, there is still the risk that ZAR remains cheap for some time.
- In other words, I think that the equity valuation gap (which is unfavorable) runs the risk of closing more efficiently than the FX valuation gap (which could persist for years).
- EZA is also exposed to Naspers' valuation problem with regard to its large investment in Tencent. EZA is therefore not only risky from an equity valuation perspective, but also from a single-stock perspective.
- Naspers represents over 20% of the EZA portfolio, and therefore overall, I do not think EZA is a "clean" instrument for gaining exposure to South African equities.
For further details see:
EZA: South African Equities Look Expensive