No reason for investors to panic around election – economists

There is no reason for investors to panic around the election in South Africa no matter who runs the country after the results are out.

Out of many possible scenarios, the one that seems most likely to market analysts is that the ANC will receive between 45% and 47% of the vote, ushering in a new era of heightened coalition politics and persisting investor uncertainty, Maarten Ackerman, chief economist at Citadel, says.

He also points out that the market already has a 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, or in other words, not much upheaval or panic from the market.

“On the other hand, if the ANC gets below 50%, which is the market consensus, we are 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.”

He says political analysts from the Paternoster Group predicted that the ANC will most likely receive between 45% and 47% of the national vote and this outcome would not be seen as an unexpected dramatic shift in the South African political landscape. It is therefore unlikely to cause the markets to panic or “overreact” to the election results.

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Investors leaning toward coalition scenario

“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.”

Ackerman says markets will also 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.

 However, he says any kind of coalition could lead to policy uncertainty, regardless of whether it leans towards pro-business or pro-populist alliances, but it could make it harder over the next few years to achieve policy certainty and expeditious policy execution.

It is also likely that smaller parties such as Rise Mzansi, Action SA and Good could tilt policy direction, especially if any of them get more than 3% of the vote and end up in coalition with the ANC.

“Our portfolios are already well diversified and prepared for increased volatility because we invest for the long-term and do not 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.”

In addition, he says, there is a “low correlation between short-term political noise and long-term market performance”.

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Advice for high net-worth clients

Directly addressing Citadel’s high net-worth clients, Ackerman says Citadel 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) are some of the highest in the world.”

He says interest rate cycles, tax challenges, elections and conflict can be found anywhere in the world. Therefore, 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.

Old Mutual also reassures investors to stay the course ahead of the election. “As financial markets brace for potential turbulence, Old Mutual advises investors to maintain resilience in their investment strategies and resist making hasty decisions driven by short-term market fluctuations,” Johann Els, chief economist at Old Mutual, says.

“Investors must prepare for potential market swings across various asset classes in anticipation of the elections. Political transitions breed uncertainty, often leading to heightened market volatility. However, looking at historical insights from political shifts in financial markets, markets tend to stabilise and investors may notice a return to more predictable patterns.”

According to Lizl Budhram, head of advice at Old Mutual, this fact underscores the imperative of maintaining a long-term perspective when markets respond to bad news. “South African investors must stay the course and exercise caution against impulsive decisions triggered by transient market downturns.”

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Rather hold on to your investments

She says that when investors act hastily and sell off their assets during a market dip, they often lock in their losses, which might have been recovered had they held onto their investments.

“Staying invested, on the other hand, allows investors the potential to participate in the market’s eventual recovery, which historically follows most downturns. Moreover, the opportunity cost of exiting the market can be quite substantial.

“This is because when investors sell their investments during a market dip, they are essentially selling their assets when the market values them at their lowest, often not receiving their true value. They then move this money into safer, but less profitable investments, such as cash, because they’re worried.”

This decision then locks in their losses and also means they could miss out on making more money later when more profitable opportunities come up, he warns. Els says instead, investors should focus on the long-term goal, revisit your investment plan for their peace of mind, seek guidance when approaching big milestones and find a soundboard before making any financial decisions.”

While the temptation to react impulsively to short-term market movements persists, Budhram cautions against such behaviour. “Emotional responses can cloud one’s judgment and lead to detrimental decisions.

“This is where the role of a financial adviser becomes crucial. Advisers serve as calm voices of reason, guiding investors through turbulent times and encouraging adherence to their long-term plans. Before making any financial decision in response to the national election, reach out and speak to a financial adviser,” she says.