Investors swayed between panic and calm as results of the elections started trickling in and the possibility of a coalition government became more real
The election results have left investors swinging between anxiety over the permutations of a potential coalition and lingering hopes that it will all lead to a market-friendly government.
Before the vote, investors were bullish, confident the ruling African National Congress would secure enough votes for an alliance with a smaller party. That drove gains in the rand and the nation’s other assets.
READ: ‘I’m not scared of anything,’ says Mantashe as ANC faces loss of outright majority
However, going into the second day of tallying, and with more than 50% of voting districts counted, indications are that the ANC may not only lose its majority but do so by a margin wider than expected.
Ivailo Vesselinov, chief strategist at Emso Asset Management, said:
We remain in something of a no-man’s-land at present, with the still-sizable uncertainty over the ANC’s final tally keeping most options for the next government on the table.
“Assets are likely to remain volatile until investors get clarity about which of the coalition’s outcomes will transpire,” he said.
The benchmark stock index extended its losses to a fourth day, the longest losing streak since 19 March.
READ: WATCH: Godongwana says he’ll stay as finance minister, voters must choose stability over chaos
That reflected some uncertainty around the election, but also global themes including a stronger dollar, weaker commodity prices and a selloff in China, said Malcolm Dorson, the head of emerging-markets strategy at Global X.
An ANC coalition with a market-friendly party would help the sentiment recover.
The yield on South Africa’s local-currency bonds maturing in 2035 rose 13 basis points to 12.21% on Friday, building on Thursday’s three-basis-point increase.
The extra yield investors demand to buy South African sovereign dollar bonds rather than US Treasuries widened on Thursday by 11 basis points, the most since 11 April, data from JPMorgan Chas showed.
Earlier in the week, investor demand had surged at South Africa’s weekly bond sale, while foreigners had been net buyers of billions of rands of the securities.
Regardless of the election outcome, the bonds remain an investor favourite. As global central banks move into an easing phase, South Africa’s double-digit yields are proving attractive.
The rand surrendered its monthly gains and was down marginally for May. The currency was the weakest among emerging-market peers on Friday, losing 0.8% to 18.8965 per dollar.
“It’s going to be highly erratic until we finally get some idea of what Parliament looks like,” said Warrick Butler, the head of foreign-exchange trading at Standard Bank.
We could be at R17.80/$ or R20/$. It’s that binary.
But the rand’s losses in the wake of early results shouldn’t be taken as a harbinger of a sustained selloff, according to Lee Hardman, senior FX strategist at MUFG Bank.
“External conditions remain supportive for carry currencies such as the rand,” he said.
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Recent Comments