As the “Ultimate Election Year” continues, the world waits to measure the possible economic outcomes

Victor Mphaphuli,STANLIB

Prof Busisiwe Mavuso

Ed Southey, Standard Stockbrocking

Investment Panel

Economics Panel

Derinia Mathura, Melville Douglas

Dr Sithembile Mbete

Kevin Lings, STANLIB

Markets want sustainability, predictability, and political stability and political events that do not achieve these have negative consequences for economies.

This was the resounding sentiment by panellists at the Democracy and Markets Investment media roundtable hosted by Standard Bank Investment Solutions in Rosebank on 18 July 2024.

Standard Bank economists, executives and investment leaders, were joined by independent experts, to unpack the big election year. They explained how the potential for political uncertainty could reach new heights this year which could in turn create volatile conditions in financial markets and concerns for developing markets that are vulnerable to election-induced market volatility, including South Africa.

Addressing the potential economic implications of the elections (both locally and globally) in the first panel were Goolam Ballim, Chief Economist at Standard Bank Group; Kevin Lings, Chief Economist, STANLIB; Prof. Busisiwe Mavuso, CEO of Business Leadership South Africa; and Dr Sthembile Mbete, Political Sciences Senior Lecturer at the University of Pretoria.

“During the last three years, South Africa has seen a stabilisation process occur. The political economy and microeconomy have strengthened, allowing an upward political trajectory to begin,” said Mavuso. “Sixty percent of the voters chose two parties. Despite their ideological differences, the ANC and DA are now welded together in a shared drive to introduce good governance. This is a sound bedrock that is promising for the future.”

During the session, the panellists expressed how voting patterns worldwide had shifted dramatically. Explaining that to date, voters had moved either to the right or extreme left of the political spectrum – signalling possible implications for economies.

“Established political leaders, whether in India or South Africa, had seen their majorities substantially reduced. In South Africa’s case, the ANC saw economic dissatisfaction lead to its fall from power and the emergence of coalition politics,” said Mbete.

Interrogating whether elections are the market movers investors believe them to be, the panellists said that 2024 was unique, with elections scheduled in 70 countries. For financial markets, these events could be viewed positively and have consequences that could result in increased investor confidence, higher levels of investment, and favourable socio-economic conditions.

However, there is also the other side of the coin, particularly for emerging economies, which could find these times particularly challenging as they face potential political instability, policy shifts, market volatility and even capital flight from markets.
Lings said, “Changes in voting have led to a fractured world economy. Lifting global growth and prosperity will require integration, coordination, and effective functioning of institutions and organisations such as the G20, IMF, BRICS, and the World Bank. The primary focus of Institutions is, however, breaking down, and their roles are becoming blurred as they move away from the main reasons for their existence.”

Ballim said, “The USA remains a focal point in developing international market sentiments. South Africa, facing the growing possibility of a second Trump administration, should evaluate the importance of trade links like AGOA and its alliances with more troubled regimes worldwide.”

The second panel included Richo Venter, Head of Portfolio Management at INN8 Invest; Victor Mphaphuli, Head of Fixed Income (STANLIB); Ed Southey, Head of Portfolio Management (Standard Stockbroking); and Derinia Mathura – Global Fund Manager at Melville Douglas.

Turning to the market implications of the election outcomes, the panel said that fixed-income activities, which involve managing investments in fixed-income securities, including various types of bonds, treasuries, and other debt instruments, are inextricably linked to politics and elections.

“For 30 years, markets had only considered what the government could deliver—the 2024 voting year marked a change, with opposition parties coming to the fore, requiring new financial scenarios to be developed,” explained Mphaphuli. “Taking market positions was undertaken cautiously before votes were cast, as a shift to the political left would have delayed economic reforms, and a move to the right would have had the opposite effect.”

As a result, after election results were announced, the selling-off that occurred before the election was reversed, and markets strengthened. From the end of May, the bond market delivered about 7,6% before including income on the investment. Foreigners returned to the market, and their share of minimal bonds now exceeds 30% as a percentage of total issuances.

Mathura explained how from an equity perspective, the build up to elections led to uncertainty as markets grappled with the potential impact of various political outcomes.

“However, ‘bottom-up stock-pickers’ take a more pragmatic view and consider this variable as just one factor to consider when acquiring stocks,” she said.

Southey added, “Taking this further, presidential candidate Donald Trump's threats to reduce import tariffs to 10% and increase the costs of Chinese imports by 60% could see buyers reassessing many stocks. The same would occur if Trump withdrew from the Paris Climate Accord, and the potential for renewable projects to stall had to be considered.”

The situation regarding renewable energy has deepened since the attempt on Trump’s life. The belief by political analysts that this event could see Trump returning to power has seen renewable energy stocks come under increased pressure.

Venter said for personal share portfolios in equities and ETFs, shifts caused by politics are assessed for the entry and exit points they provided for acquiring stocks locally and globally.

“Locally, uncertainty about the ANC’s ability to retain its majority increased, so equities dipped, only to recover when the GNU became a reality. Positive policy developments on the economic front could provide a further boost.”

With many countries still going to the polls, the uncertainty facing markets worldwide will not recede before year-end. For South Africans, however, their attention will remain on developments closer to home as the ability of the GNU to overcome differences and set viable economic strategies is tested.