Maarten Ackerman, Citadel’s Chief Economist, says investors have no reason to panic, as he unpacks likely outcomes and market reactions to the 2024 general elections.
Out of many possible scenarios, the one that seems most likely to market analysts is that the African National Congress (ANC) will receive between 45% and 47% of the vote, ushering in a new era of heightened coalition politics and persisting investor uncertainty, according to Citadel’s Chief Economist, Maarten Ackerman.
THE MARKET ALREADY HAS CONSENSUS ON THE MOST LIKELY ELECTION SCENARIOS
The elections are expected to be free and fair. The market is expecting to see the ANC’s dominance decline further. If the ruling party manages to keep more than 50% of the vote, coalition politics become less important, and this will mean more of the same, in other words, not much upheaval or panic from the market. On the other hand, if they get below 50%, which is the market consensus, we’re likely to see more coalitions and no matter which way these coalitions lean, it will most likely create more uncertainty over the short-term with investors.
Political analysts from the Paternoster Group predicted that the ANC was most likely to receive between 45% and 47% of the national vote. They said such an outcome would not be seen as an unexpected dramatic shift in the South African political landscape and was therefore unlikely to cause the markets to panic or “overreact” to the election results.
“Investors are already leaning towards the coalition scenario and these risks have already been priced in mostly by the currency, bond and equity markets. If anything, dramatic and unexpected happens on the day, such as violence, protest or extreme weather preventing optimal voter turnout, markets might react negatively but should normalise as soon as the political dust settles, probably within a week or two. Markets will return to fundamental drivers soon after the elections and the rand should soon be impacted by the likely path of US interest rates towards the end of the year rather than the election outcome,” says Ackerman.
ANY KIND OF COALITION COULD LEAD TO POLICY UNCERTAINTY
The economist was however quick to add that any coalition, regardless of whether it leaned towards pro-business or pro-populist alliances could make it harder over the next few years to achieve policy certainty and expeditious policy execution. It was also likely that smaller parties such as Rise Mzansi, Action SA and Good could tilt policy direction, especially if any of them manages to get more than 3% of the vote and end up in coalition with the ANC.
FINANCIAL FREEDOM COMES FROM DIVERSIFICATION
“Our portfolios are already well diversified and prepared for increased volatility because we invest for the long-term and don’t just make decisions around the upcoming events. While many South African stocks are undervalued right now, many present as a solid investment opportunity. We will look into these local opportunities, especially if we believe in the quality of the underlying businesses. We are valuations driven and that means looking at what you pay versus what you get. We assess the entire investment landscape, of which South Africa is 1% and therefore ensure that we are globally well diversified to weather any local or global storm.”
Ackerman also explained that there was a “low correlation between short-term political noise and long-term market performance”.
Directly addressing Citadel’s high net worth clients, Ackerman said they would never advise them to completely withdraw from South Africa’s investment landscape. The country offers many quality companies with a strong future and given current monetary policy our real yields (cash after inflation) is some of the highest in the world. “Interest rate cycles, tax challenges, elections and conflict can be found anywhere in the world. So, the secret to investment success is diversification, locally and globally while sticking to a well-defined financial plan. The future is uncertain and will surprise, investors must have the freedom to choose, that’s true wealth.”