Trading the elections – is there opportunity in uncertainty? - Corporate Events South Africa

On Thursday, 2 May, at the Business Day | Financial Mail Investment Dialogues in partnership with IG Markets Ltd, Head of IG SA Solomon Gounden welcomed three experts to the stage to debate the questions ‘what can you expect from the 2019 general elections and how are the financial markets likely to react?’.   

A tough year for the ANC
Head of Politics and Governance at the Institute of Race Relations Gareth van Onselen presented the IRR’s April 2019 election poll of 2 375 registered voters. “This year’s been tough for the ANC,” he said. Loadshedding and the Zondo commission’s findings have undermined the core pillars of Cyril Ramaphosa’s campaign: good governance and a tough start on corruption. The EFF has enjoyed significant growth (14.9%) at the expense of the ANC (49.5%). Meanwhile, the DA has spent a lot of resources trying to hold on to its base – currently at 21.3%. 

Voter turnout is likely to decline owing to high levels of discontent. Voters across demographics have indicated that they believe the country is going in the wrong direction. Van Onselen predicted that the ANC will squeeze the EFF base in the last week to win back some of its alienated black voters.

Do you trust President Cyril Ramaphosa?
Ranjeni Munusamy (Associate Editor: Analysis at Tiso Blackstar Group) and Garth Mackenzie (Founder: TradersCorner.co.za) joined Van Onselen on stage for an in-depth panel discussion.
“That initial optimism we had last year diminished as reality set in,” said Munusamy, who’s been covering elections since 1994. She predicted that this year’s elections will boil down to two questions: Do you trust President Cyril Ramaphosa? How long can he survive the factional battle within the ANC?

What do the markets think?
Mackenzie said financial markets are looking for an ANC win of 58% or more. This will “cement Cyril Ramaphosa at the helm” and give him a “platform to appoint an uncompromised cabinet” to “continue with his growth and anti-corruption mandate”.

“Markets want certainty to look beyond the past to the future,” he said, explaining that a significant win for the ANC will result in a firmer rand, lower bond yields, a lag in dual-listed rand hedge stocks, and higher value of domestic stocks and listed property. If, however, the ANC gets 52% or less of the national vote, it will be a shock to the marketplace. 

“I understand the market is looking for stability,” Van Onselen weighed in, “but we need a change in power nationally. Bad performance must be met with consequences. This government does not deserve to be in government again for five years.” Van Onselen and Mackenzie agreed that after the elections, the government needs to fix the public sector wage bill, Eskom and other state-owned enterprises (SEOs). 

Do our leaders inspire confidence?
Van Onselen and Munusamy agreed that this election lacks inspiring leadership, with the notable exception of Julius Malema, who is the EFF. “Cyril was born to lead South Africa,” Munusamy said. “He should have been president a long time ago.” However, at the moment “he is struggling too much”. On Mmusi Maimane, she said: “He can’t decide what he wants the DA to be and represent […] but replacing him could unravel the process of transformation ongoing in the ANC.”
Van Onselen said Ramaphosa’s favourability among polled voters is much higher than the ANC’s. He has a good reputation and there’s hope that he will transform the ANC, but this good narrative has been eroded by his indecisive behaviour and majoritarian impulse. “We need a powerful metaphor where he’s made a big decision that cost him some capital,” he emphasised.

Opportunity in uncertainty
“Foreign investors have largely shunned South African investment markets and the JSE,” Mackenzie explained, “but it has also left our assets going at quite a discount.”

“From late 2015, foreign investors have consistently been sellers of our markets,” he said. The only time this trend changed was during the period of “Ramaphoria” following February 2018. Ramaphosa is already a fifth of the way to delivering on his promise to bring in $100bn in foreign investment in the next five years. A second era of Ramaphoria might welcome back investor confidence and inflows of foreign investment into domestic stocks, he said.

So, where should investors put their money? Mackenzie suggested large-cap investment stocks like FirstRand, Sanlam, Foschini, Clicks and Bidvest.