By: Peter Armitage, CEO, Anchor
South Africa voted on 8 May, in what was probably the most important general election since the dawn of democracy. Surprisingly, from the data, voter turnout was very low at 65.99% of the total 26.8mn registered voters. Julius Malema’s EFF has become the official opposition in three provinces and grown to 10.8% nationally, but its performance was disappointing relative to what some pollsters (and the party) had forecast – a possible reason being the far lower-than-expected youth turnout (the EFF’s biggest support base) vs older voters. The ANC garnered a majority nationally as well as in all provinces except the DA-led Western Cape, meaning that Malema’s mooted pre-election role as kingmaker is no longer relevant.
In terms of parliamentary seats, there were 400 seats up for grabs. We highlight that the top-5 parties (ANC, DA, EFF, IFP and Freedom Front Plus) together received 382 seats in this election, with the ANC and the DA losing 19 and 5 seats, respectively, and the EFF and FF Plus (a surprise performer) gaining 15 and 6 seats each, respectively. The national assembly now has 14 political parties represented.
The final vote tally means Anchor’s base-case scenario, in which we expected the ANC to get 58%-plus of the vote, has materialised, with the ANC winning 57.5% of the national vote. We view the results as providing Ramaphosa with a mandate to continue his reform and anti-corruption drive, which is positive for SA investor confidence. We believe the current ‘repair’ scenario should maintain its momentum, with Ramaphosa emboldened and seen as having received the required mandate from voters to solidify his position and steer ahead unfettered with his anti-corruption and growth agenda.
Pivotal now is for him to show leadership with the appointment of his new cabinet, which will be the first key message he sends to global and local investors. It is by all accounts also set to be cut from the bloated cabinet of the Zuma years, with fewer Zuma cronies or compromised individuals. This should see him make headway in managing divisions within the ANC, as well as gaining the support of the ANC caucus and the NEC, as he intensifies the fight against corruption and state capture. More importantly, it will be a truer test of his ability to execute on his promises to rid the country of rampant corruption.
This, in turn, will be positive for the local economy and we are likely to see more inflows of foreign direct investment and local investment as ANC policies are (hopefully) clarified, especially those related to expropriation without compensation, the nationalisation of the SA Reserve Bank etc. This means a more certain future overall, with Ramaphosa perhaps serving two terms, boosting the JSE (bar any external offshore factors) and the rand strengthening. Hence, we recommend higher exposure to SA Inc. shares, especially quality counters where foreigners take their exposure – FirstRand, Standard Bank, Foschini, DisChem, Bidvest, RMI, AVI, Coronation, Shoprite, Clicks and property shares are likely to do well, while more cyclical counters such as Motus, Imperial and Super Group could also rise materially as expectations of economic growth improve. Rand-hedge shares would likely underperform with a strengthening currency.
While we are maintaining meaningful exposure to SA Inc. shares, we are also retaining a diversified portfolio. Importantly, investors should be ready to react as the SA political drama unfolds. SA has serious structural issues and the advances made in solving these are equally important. It should be borne in mind that many of the factors impacting equity markets are global in nature and the SA political outcome is just one of the contributors.
While we continue to have a positive stance on local equities, the future is far from certain despite our base-case election scenario unfolding. Being nimble is as important as it has ever been, and we will be quick to act in the best interests of our clients. Investors in the SA market have been going through emotional turmoil for a while now, with worsening local news and a difficult operating environment for businesses (although the global backdrop had proved supportive). Hence, sectoral exposure is increasingly critical, and these could be materially differentiated over the coming months. However, we believe an emboldened Ramaphosa could lead to more certainty as well as more definitive policy measures which are likely to boost the flagging SA economy.