Investec, a niche private banking and wealth management group, expects this week’s general elections to see the ANC retain power, either through an outright victory or a coalition led by it, an outcome it says will calm the markets.
Cumesh Moodliar, who heads Investec’s SA business, said all indications were that the ANC would still have a big say on policy after the hotly contested elections, set for Wednesday.
“We have been following polling very closely from an SA perspective. Early indications appear to be that the ANC will in some form or the other still retain an election outcome that is positive for it,” Moodliar said.
“In other words, they will get either just over 50% or 45%-50%, which means that whatever coalition that will be formed, in our view, will be a coalition for economic stability.”
Several polls have predicted the ANC losing outright power for the first time, with coalition governments at national and provincial levels on the cards.
The EFF, DA, IFP and Jacob Zuma’s MK party are likely to emerge as king makers, particularly if the ANC’s support plunges below 45%.
Coalition governments at municipal level have already given the electorate a sour taste of chaotic governance, with metro governments changing every few months in councils that did not have outright winners, such as Johannesburg, Tshwane and Ekurhuleni.
Deputy finance minister David Masondo told investors three weeks ago that President Cyril Ramaphosa’s reform agenda was at risk of stalling should the country be presided over by an “unstable coalition”.
Masondo, who doubles up as the chair of the state asset management company, the Public Investment Corporation, was addressing a group of investors at an event organised by Bank of America.
London-based Capital Economics said the many permutations range from a centrist ANC-DA coalition to a so-called doomsday coalition, in which the ANC teams up with the EFF.
It said whichever parties govern, a more fragmented parliament is likely to make stabilising the public finances and tackling structural economic problems even more difficult.
“During the next parliamentary term, we think the public debt ratio will continue to rise while GDP growth will stay weak at about 1%-1.5% a year.”
Investec group CEO Fani Titi got under the skin of the ANC last year after saying voters should vote out “useless politicians”.
John Biccard, portfolio manager of Ninety One Value Fund, said valuation and positioning indicate that the market is not optimistic over the outcome of the election.
“Our view is that the extreme levels of both mean that the market is 80% sure of a bad outcome. What would constitute a bad outcome for the capital markets? Simply put, it would be ANC support falling to about 40% and the party then choosing an EFF or MK alliance to secure a majority,” Biccard said.
“We consider the chances of this happening to be quite low: the ANC will need to get only 40% of the vote (50% probability in our view) and thereafter they would need to choose EFF/MK as their partner (20% probability in our view). We therefore see the probability of a bad outcome as only 10%, a stark contrast to what the market appears to be pricing in.”
One of SA’s key trade partners, the UK, is also heading to elections, after Prime Minister Rishi Sunak last week announced a general election on July 4.
Ruth Leas, who runs Investec’s affairs in the UK, said the snap elections would provide the country with an opportunity to reset.
“We welcome the announcement of snap UK elections.
“We have been operating in a period of political uncertainty for a long time. This has led to sluggish economic growth and reluctant investment decisions,” she said.
“The market here is just looking for clarity and certainty and to move forward.
“Hopefully, the outcome of everything will be a reduction in inflation, thereby interest rates. A combination of certainty after the elections with the signalling of interest rate cuts should lead to positive levels of activity going forward. We are cautiously optimistic going into this election.”
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