Markets face curveball of twin elections
In 2024, SA market watchers will have to contend with two big elections. The country is scheduled to hold a general election in May or the months after, while the US will vote for president in November.
The overlap of these cycles implies that political uncertainty will be a feature of markets the whole year. For somewhat different reasons, both elections could be hugely consequential for citizens and markets, and will be closely watched.
The SA election is likely to be the most consequential yet from an investment perspective. It is set to give a decisive signal of an end of the ANC’s three-decade dominance of SA’s political life and herald a new world for citizens and most financial market professionals.
For longer than most of our careers and some of our lives, the party has been the dominant political force in SA. But this year the ANC is below 50% in every poll and continues to fracture as senior leaders form new political movements. Its performance in municipal elections also indicates material erosion of support.
UNCERTAINTY
The party garnered just 45.6% of the popular vote in the 2021 municipal elections, a loss of eight percentage points relative to its showing in 2016. We cannot assume the same loss of support in the general election as in the municipal vote, but the slide in support for the ANC appears to be entrenched.
The increase in political contestation implies a rise in policy uncertainty. In every conversation with investors the in question this year of’the s polls ANC’s comes fortunes up, followed closely by a discussion on how the political landscape could evolve if the ANC continues to weaken beyond 2024. Investors worry about how far the party could slip and how this could change governance.
Will the party be able to form a coalition that leaves it in a dominant position from a policymaking perspective? Can investors assume the structural reform agenda will remain unchanged? What deals would have to be made, and with whom, to broker a stable coalition? Will it even be possible to establish a stable coalition government at a national level given how coalitions have performed at municipalities? What are the implications of coalition governments at provincial level? What happens to ANC support post 2024? Will the party be weaker or stronger in 2029?
An arguably even more important question of sociopolitical stability is also on the table. SA has well-discussed political economy problems of acute inequality, poverty and unemployment. The ANC has historically been mostly successful at brokering a workable social contract and delivering a level of sociopolitical stability. If the party continues to lose political power and with it credibility and authority what, if anything, will emerge to fill this gap? Can SA continue to stave off generalised unrest given what appears to be an explosive political economy context?
SENTIMENT
It has become more difficult to make long-term investment decisions and the ongoing political transition will not help. There are clearly more questions than answers, and many of the most important might not even be answered by the results of the 2024 elections. SA appears to be coasting at a higher level of political uncertainty, which will keep risk premiums high and probably depress investment.
In the US the race appears close between unpredictable, anti-establishment Donald Trump for the Republicans and a geriatric Joe Biden for the Democrats. This is as foreign policy challenges proliferate. Russia and Ukraine are still at war, and now there is a new war in the Middle East. The Taiwanese election could yet complicate relations with China.
The surrounding noise is likely to continue to build, which might constrain risktaking globally.
The elevated political risk is likely to keep markets nervous and volatile. Central banks could yet come to our rescue if they cut rates as expected this year. The SA Reserve Bank and the US Federal Reserve are poised to start easing in March.