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The rand weakened as much as 2% and traded at 18.70 to the dollar on Thursday morning as the election results and projections started to indicate a new political landscape in South Africa, while the JSE also did not escape the pressure of the election results.
The Council for Scientific and Industrial Research (CSIR) projected the ANC would get 42% of the national vote.
According to Moneyweb the rand traded at R18.70 by 10:56am, but it regained a little ground to trade at R18.59 by 6pm.
Stocks also tumbled, according to Moneyweb, with the FTSE/JSE Africa All Share Index falling as much as 2.3%. The yield on local-currency bonds maturing in 2035 rose 17 basis points to 12.2%, a five-week high.
“This is watershed moment for South Africa and has the potential to redraw the political map,. It ushers in an era of substantial uncertainty for South Africa as the ANC will be forced to choose its political bedfellows and the economic orientation that it will present to the country over the next five years,” Daniel Silke, director of Cape Town-based Political Futures Consultancy, told Moneyweb.
The rand already started falling on Thursday morning as early poll results showed the governing ANC was set to lose its majority, which could make it necessary to negotiate a coalition with one or more smaller parties over the next few weeks. At 7:16am the rand traded at R18.65 against the dollar, over 1% weaker than its previous close.
Later in the day, at 2:08pm the local currency was trading at R18.60, about 0.8% weaker than its previous close.
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South Africa’s stocks and bonds also tumbled on Thursday due to the election projections indicating that the ANC might lose its parliamentary majority for the first time in 30 years. On the Johannesburg Stock Exchange, the blue-chip Top-40 index was down almost 2% compared to a 1.46% decline across wider emerging markets, while both local and international bonds also came under pressure, according to Moneyweb.
If the ANC does lose its majority, it would have to make a deal with one or more other parties to govern and this could cause political volatility and uncertainty over economic and fiscal policy.
Prof. Jannie Rossouw, visiting professor at the Wits Business School, says coalitions are coming and with the current election results the volatility of the rand is expected while producer price inflation was also not great.
“What will help the rand is the fact that the Reserve Bank left the repo rate unchanged. There will be uncertainty on the financial markets for a while until there is certainty about who will run the country and what the economic and fiscal policy will be.”
Rossouw said it is significant that the ANC seems to be losing support to the right as well as the left and he sees this as the “dawn of a new dispensation” in South Africa.
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