THREE POST-ANC CONFERENCE SCENARIOS

AN ECONOMY thrives on confidence, says Mark Appleton, the head of South African strategy and multi asset at Ashburton Investment. “When confidence is high, businesses invest and consumers spend money. This boosts economic growth. Right now, policy uncertainty is high and confidence is low, and it is not a great surprise to see a lack of private-sector investment as a result.”

Appleton says the importance of the ANC’s elective conference in December cannot be overstated. There are three scenarios worth considering:

• A business-friendly outcome with the uncompromised promise of meaningful reform could catapult South Africa onto a higher growth trajectory. The rand would likely strengthen, bond yields would decline, private-sector investment would rise and South Africansensitive equities would re-rate upwards. “This is clearly a highroad outcome, although it carries a relatively low probability in its purest form,” Appleton says.

• A compromised outcome where party unity is favoured and the patronage faction is protected. This is the most probable outcome, Appleton says. Matters don’t get worse, but the outlook does not brighten. Potential growth remains sub-par and a credit rating downgrade is inevitable. The rand would continue to weaken gradually in line with inflation differentials. “We think the market is priced for this, to a large degree,” he says.

• A low-road outcome where the patronage faction comes to the fore without any business-friendly compromise. Appleton says: “While we think this is a relatively low probability, the investment implications are significant. In this scenario, there would be meaningful fiscal erosion. We would be firmly on a credit downgrade path (many downgrades). The rand would weaken, bond yields would rise and the Reserve Bank, assuming it remains independent, would respond with a tightening monetary policy. South African-sensitive equities would de-rate, as would South African property.”