Andrew Bahlmann, managing director of Deal Leaders Africa said that the the South African markets will not react favourably to a coalition government.
As the Electoral Commission of South Africa (IEC) continues to tabulate the votes of the May 29 election, research organisations have made predictions that the African National Congress (ANC) will most certainly lose its majority.
If this happens, the ANC will be forced to form a coalition with one or more of the various political parties in SA.
“The ANC might have to consider forming an alliance with one of its major rivals in order to maintain its hold on power,” Bahlmann said.
“The ruling party appears so far to be doing as poorly as the worst projections. This is being indicated by a model developed by the State’s own research agency,” he added.
According to projections from the Council of Scientific and Industrial Research (CSIR), the ANC is currently on track to win 42% of the votes.
The CSIR said it based its research on an extrapolation of early tallies released by the IEC.
The research body said it projects that the Democratic Alliance (DA) will get 22.3% of the vote.
It said that the uMkhonto weSizwe (MK) Party would get around 12.8% of the vote and the Economic Freedom Fighters (EFF) would get around 9% of the vote.
Politically, this may be good news, but markets do not like the uncertainty of unstable coalitions, Bahlmann explained.
“These projects give the ANC the option of partnering with the market-friendly DA, which markets would undoubtedly prefer or one of the two populist parties that advocate for the nationalisation of mines and banks.
“The possibility of an unstable coalition is causing concern in financial markets, as such, a coalition would likely demand policy changes that could discourage investment,” he added.
Bahlmann used the rand’s strength to the dollar as an example.
“For instance, the weakening of the rand against the dollar (reaching R18.66 to the dollar yesterday) is a concerning sign for investors and businesses,” he emphasised.
Bahlmann argued that investors often prefer a stable or appreciating currency to mitigate risks.
“Uncertainty surrounding political events, economic policies, or global market conditions can contribute to currency volatility. When investors perceive uncertainty, they tend to seek safer assets, which can lead to a weakening currency,” he concluded.
No idea what this new government means
Ivailo Vesselinov, chief strategist at Emso Asset Management told News24 that investors will have a fair amount of uncertainty.
"We remain in something of a no-man’s-land at present, with the still-sizeable uncertainty over the ANC’s final tally keeping most options for the next government on the table," said Vesselinov said.
He said that South African assets will most likely remain volatile until investors get more clarity about the coalition government.
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