Key market take-outs on ANC election result

The ANC has elected Cyril Ramaphosa as its new President. He will in all likelihood also become the President of South Africa following national elections in 2019 or earlier, if President Jacob Zuma steps down before then.

Ramaphosa’s election as President of the ANC comes amidst a crisis in confidence in both business and consumer sectors. Ramaphosa is well regarded by financial markets and has championed fighting corruption and enhancing policy certainty in a bid to revive economic growth. His election should therefore be viewed as positive by financial markets.

“We expect markets to react positively to Ramaphosa’s election as President of the ANC. As such, we would likely see a stronger rand, a stronger domestic bond market and relatively positive returns from SA Inc. stocks,” says Tinyiko Ngwenya, economist at Old Mutual Investment Group.

If the Rand’s strength is sustained it could lead to lower inflation and pave the way for interest rate cuts. However, before that is possible, markets and the SARB will probably need to see evidence in the 2018/19 Budget to be presented in February next year that Government is committed to achieving fiscal consolidation.

Indeed, while the election of Ramaphosa is potentially an important turning point for South Africa, considerable uncertainty remains, according to John Orford, portfolio manager at Old Mutual Investment Group.

Firstly, because Cyril Ramaphosa will not be President of the country until Jacob Zuma steps down or until the next general election in 2019, his immediate ability to influence policy is uncertain.

Secondly, regardless of the election outcome, South Africa’s sovereign credit ratings could still be downgraded by Moody’s. If this happens, it could trigger an outflow of capital from South Africa’s bond market, putting pressure on the Rand and bond yields.

“We suggest that investors stay calm and stay invested in the long term and know that they are invested with a company that has robust well-diversified portfolios that can weather the volatility likely to surround any potential downgrade and the February Budget. Our portfolios have delivered good real returns over many years and through many investment cycles. We expect them to continue doing so in the future,” concludes Orford.



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