Market on tenterhooks amid coalition talks

The rand and the markets were flat on Monday following the announcement of the election results the night prior. 

The expectation was that markets would dampen after the election. 

Last Friday, the JSE All Share Index (JSE Alsi) was down 3.09% — the lowest it has been in six months — because the likelihood of a coalition government was materialising, spooking investors. Also on Friday, the rand slumped 2.12% to R18.80 to the dollar.

The ANC won 40.2% of the votes cast on 29 May, down from 57.50% in 2019. The official opposition, the Democratic Alliance (DA), received 21.8% of the votes and Jacob Zuma’s uMkhonto weSizwe (MK) party garnered 14.6% of the votes, beating the Economic Freedom Fighters (EFF), which received 9.5%.  

“We did expect a blue Monday and everyone was expecting some sort of pandemonium. But, the market is quiet. Everyone is on tenterhooks,” said Matete Thulare, the head of FX execution at Rand Merchant Bank. 

At 15:30 on Monday the JSE Alsi had strengthened by 1.2%. The rand firmed by 0.93% to R18.63 to the dollar. 

The market is waiting for something concrete to come out of coalition talks, Thulare said. “Because there is no outright winner, the market is mostly worried about the uncertainty on the future of policy direction,” he said. 

In a statement on Monday, Moody’s said the prospects of a coalition government in South Africa may usher in a period of political and policy uncertainty. 

“A coalition government could complicate the execution of fiscal, economic and social policies that would help address South Africa’s structural credit weaknesses, such as slow economic growth, inefficiencies in the energy and logistics sectors, and high unemployment,’’ said Aurelien Mali, the vice-president and senior credit officer at Moody’s. 

Annabel Bishop, chief economist at Investec, said in a statement that market concerns now centre on the ANC’s choice of coalition partners, with President Cyril Ramaphosa having highlighted the necessity for coalition with parties that support the Constitution. 

“Markets are deeply worried that the ANC may choose a coalition with the EFF to get it over the 50% mark,” Bishop said. 

At a press briefing held at the national results centre on Saturday, EFF leader Julius Malema said the party is open to forming a coalition government with any political party, but its first preference is working with the ANC.

Bishop said the rand would strengthen on an increased likelihood of an ANC and the DA or broader Multi-Party Charter coalition. 

The rand would move in the opposite direction in the event of an ANC-EFF or ANC-MK party coalition. 

“That is where the uncertainty lies, because no one knows what this new government will bring — what it will implement, what it will agree and disagree on. We are all sitting and waiting in the dark,” Thulare said.