The rand, often a barometer of sentiment towards emerging markets, plummeted by more than 2% after Donald Trump’s re-election in the US, before clawing back some of those losses later in the day.
The initial knee-jerk reaction reflects concern among traders and investors regarding the implications of Trump’s return to the White House for emerging markets like SA.
The local currency, which rose to an eight-month high after Joe Biden’s victory in 2020, initially fell the most since August 2023 on Wednesday, as investors expressed concern that a Trump presidency could reignite his “America First” policies.
These policies have historically led to increased trade tension and volatility in emerging markets.
Many analysts fear for SA’s export dynamics which could dampen investor sentiment. As a result there is growing concern about reduced foreign investment and higher import costs.
Sanlam head of fixed-income investment strategy James Turp said the rand weakened due to a stronger dollar across the board after the Republican Senate and Trump wins.
“Concerns surround Trump’s potential tariffs on China and other markets, which could harm global trade and ultimately affect SA,” Turp said.
At 7pm, the rand had recovered to be 1.37% weaker at R17.62/$ — having touched an intraday worst of R17.82.
The Mexican peso fell more than the rand, on expectations that Trump will clamp down on US immigration.
Yields on SA’s 10-year bonds rose 20 basis points to 9.6%, before recovering late to 9.38%. Bond yields move inversely to their prices.
Turp said the local bond market tracked its US counterparts, with the US treasury yield curve turning both higher and steeper as Trump policies are expected to require additional funding.
While there is some concern over the future of the African Growth and Opportunity Act (Agoa), which provides trade benefits to SA goods entering the US, some believe the policy will remain in place.
Camissa Asset Management head of research Abdul Davids said Agoa was being reviewed, and in the process of being regulated. “I don’t think there’s going to be any changes to that,” Davids said. “It is worth noting that Trump isn’t that focused on SA. His attention is on the likes of China and around intellectual property rights. I don’t think SA and Africa are a priority.
“The concept of Agoa will extend beyond his upcoming term as it goes to the year 2030 and beyond,” he said.
According to NBC News, Trump’s win has been largely attributed to widespread voter dissatisfaction with the state of the economy and personal finances. Many Americans felt that the present administration had not done enough to address inflation and economic woes.
Nearly 45% of voters reported being financially worse off than four years ago, marking the highest level of economic dissatisfaction since the 2008 election. Despite economic growth, a low unemployment rate, and a thriving stock market, two-thirds of voters rated the economy poorly.
Trump’s anti-renewable energy policies are, however, a major concern. He has vowed to pull the US out of the Paris climate agreement, with plans to focus on increasing oil and gas production.
Analysts say his administration could also halt new grants and weaken incentives for renewable energy projects, such as wind, solar and utility storage batteries.
Ninety One chief sustainability officer Nazmeera Moola said a Republican victory was likely to see the US retreat from all global climate initiatives — much like was seen in the first Trump presidency.
“This is likely to slow momentum to combat climate change, unless other parts of the world step up and fill the gap,” Moola said. “We think that countries like China and India will continue to focus on energy transition-related investments — as these have been driven by their positive financial benefits and effect on growth to date.”
Precious metals took a pounding on the day with the index on the JSE faring worst, down 5.8%. This came as money moved to the safe haven of the dollar. In contrast, US stocks rallied with the Dow Jones industrial average hitting a record high. At 8pm it was up 3.22% to 43,582 points.
On the geopolitical front, Old Mutual Wealth chief investment strategist Izak Odendaal said Trump was likely to put pressure on Ukraine to start negotiations with Russia, and give firm support to Israel in its war with Hamas and Hezbollah.
Trump’s victory over vice-president Kamala Harris raises questions over the future of US support, which has so far been key to Ukraine’s survival against a much larger and better equipped enemy.
Ukraine’s President Volodymyr Zelensky, who was among the first world leaders to congratulate Trump, on Wednesday appealed to the president-elect’s image as a tough leader in the hope of persuading him not to abandon its cause in pursuit of peace with Russia.
“Given SA’s stance on some of these issues, it becomes a more challenging foreign policy environment for SA, and requires greater diplomatic skill on our part. However, Trump is probably not terribly interested in Africa or SA,” Odendaal said.
Looking ahead, Kim Silberman, economist and macro strategist at Matrix Fund Managers, said that markets were unsure how to interpret a Trump and running mate JD Vance presidency.
“We expect that over the coming weeks, asset and derivative prices will overreact to even minor news or data releases until there is more certainty as to how macroeconomic policy and geopolitics could play out.”
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