Markets, rand look good ahead of election

Henry

The private investment and wealth management company Everest Wealth says the markets and rand had a “good run” in the run-up to next week’s election.

Thys van Zyl, CEO of Everest Wealth, says this is largely due to the almost 60 consecutive days of respite from load shedding that South Africans are currently experiencing and the fact that political risk has decreased in the past few weeks.

“There were not really serious negative events, such as violence or protests, or negative sentiment in the run-up to the election. Furthermore, a reasonably positive outcome is also expected in next week’s election and if it is possible to continue to limit load shedding, it is expected to be able to strengthen GDP growth in the second quarter.”

Van Zyl now says there are a few likely scenarios after the South Africans drew their crosses on Wednesday.

“If the ANC retains its majority, it will result in policy continuity which will be neutral for markets. This should also be the case if the ANC just loses its majority and enters into a coalition with small parties.

“If the ANC decides to form a coalition with the IVP and a few other smaller parties, it could possibly be market-friendly and favorable for the rand,” explains van Zyl.

“If the ANC receives considerably less support and there is the possibility of a coalition with a larger party such as the EFF or the DA, in the case of a coalition with the DA this could lead to a more market-friendly policy and in the case of a coalition with the EFF it can lead to risks and a negative effect.”

Van Zyl says a coalition government can lead to policy change which can ultimately have a positive or negative influence on the business sector, investors, sentiment and trust.

“Foreign investors may currently be taking a wait-and-see approach, but there is room for optimism with the improvement in the power situation, a possible interest rate cut on the horizon and a recent rise in commodity prices. Investors may already be less timid to buy South African assets as there is less uncertainty about the outcome of the election. South Africa will also remain attractive for certain sectors after the election and the good run for markets can continue.”

However, he points out that the rand remains vulnerable to international and local instability.

“The rand is known for reacting to international events.”

Van Zyl says developments in the American financial market have already had a major influence on the currency this year.

“The rand is a very undervalued exchange rate. The rand is extremely sensitive to international events and local issues and its volatility will continue this year amid geo-political tensions. The potential for lower interest rates in the US is currently one of the important factors contributing to the rand’s run.

‚ÄúLocally, interest rates are expected to remain unchanged next week when the monetary policy committee announces its latest interest rate decision. Interest rates may be cut once or twice this year. Meanwhile, the higher interest rates attract foreign capital and cause the exchange rate to strengthen.”