Rand gives up gains as coalition talks spook investors

Anchor Capital’s co-chief investment officer, Nolan Wapenaar, said that the rand was a good measure of what the market was thinking. Picture: Henk Kruger Independent Newspapers

Anchor Capital’s co-chief investment officer, Nolan Wapenaar, said that the rand was a good measure of what the market was thinking. Picture: Henk Kruger Independent Newspapers

Published Jun 7, 2024


Nicola Mawson

The rand slowly gave up some gains and hovered around the R19 mark to the dollar for the better part of the day yesterday as talks over the uncertainty of the next government, which may turn out to be a coalition of some sort, continued behind closed doors.

News emerged this week that the ANC could look at a government of national unity, which would see several parties invited to rule alongside it, following its historic loss of parliamentary majority in the general elections last week.

At the same time, there was a large amount of buzz as to whether a coalition government will be formed or a government of national unity.

The market sentiment turned even more cautious yesterday following the proposal of a government of national unity, which could potentially include more radical parties.

The JSE yesterday closed slightly higher with the all share index rising 0.4% to 77 115 points, largely driven by Gold Fields, Pan African Resources, Kumba Iron Ore, Richemont, and AB InBev among the top five performers, while Thungela Resources, SPAR, Motus Holdings, Old Mutual, and Sun International slid.

However, the rand fell 0.1% to R18.96 to the greenback by 5pm as the uncertainty of the new government administration spooked currency speculators.

As the markets await an outcome, Anchor Capital’s co-chief investment officer, Nolan Wapenaar, said there was not much happening to unsettle the rand, or the JSE, except for local factors, although an interest rate announcement by the US Federal Reserve (Fed) could see some dollar weakness.

Wapenaar said that the rand was a good measure of what the market was thinking.

“A government of national unity raises some concerns within the markets as they are generally quite unstable and are fraught with the challenges of keeping unity between vastly different political views,” he said.

“The economy is not in a position to withstand further pressure from politicians, and investors are fearful of coalitions that are negative for the country’s economic outlook.”

Wapenaar said the weakening rand was in response to some of the coalition risks, which investors were watching with a keen eye.

“The possible introduction of populist parties into government is being mooted and concerns investors,” he said.

“The weaker rand may see petrol prices and the prices of imported goods rise and may prompt the Reserve Bank to further delay interest rate cuts.”

Yet, Old Mutual Group chief economist Johann Els was not concerned yesterday as he told Business Report that the rand had been “remarkably stable despite the ups and downs”, considering the uncertainty created because of the election results.

“I think the market would have reacted far more negatively if there weren’t the checks and balances that we've got in the South African systems,” he said, citing aspects such as a strong Constitution and rule of law.

“I think all of that has created relative stability for investors realising that this is now mature democracy agency,” he said.

Els added that there may be volatility in the currency and in the stock market over the next few days “until we have clarity of whether it’s a government of national unity, who’s included, whether it’s a minority government or whether it’s some kind of coalition and what type of coalition it might be”.

Meanwhile, Wapenaar pointed to some structural risks that were also hampering South Africa and adding to the market’s nervousness about South Africa’s policy direction.

He said these included the fact that the country’s finances were in a weak state with very little scope for additional spending programmes.

“The jobs and economic growth initiatives to date just have not delivered what the country needs. Investors and financial markets are looking for policy certainty and pro-economic growth policies as economic growth will benefit everyone in the long run,” Wapenaar said.

“There is a significant risk that the government lurches into increased social spending that it simply cannot afford now.”