The more it changes, the more it stays the same

If there is a unifying theme for the year that is almost over, it is uncertainty. In fact, it has been the theme of the past three years.

From the pandemic, which is still very much a reality in China, to tight elections in the US, policy bungling in the UK, an inflation surge and corresponding increase in interest rates and of course, Russia’s brutal invasion of Ukraine. We can now also add domestic political unease to this list. Some of these events matter more for markets, as we’ll see below. Often it is not the big screaming headlines that cause portfolio damage, but more subtle shifts. More often than not, it is the investor’s own reaction to such events that causes the most damage.

Resignation anxieties
President Ramaphosa’s future is now in question. While the Phala Phala affair has been simmering for a while, last week an independent panel recommended that Parliament commence impeachment proceedings against him for potentially abusing his power and violating the Constitution. Just a week prior, Ramaphosa won the overwhelming number of nominations from branches, putting him in pole position to secure another term as ANC leader. But, as the saying goes, in politics a week is a lifetime.

After the panel’s findings were released, news reports broke that his resignation was imminent and financial markets reacted sharply. It now appears as if Ramaphosa will instead challenge the allegations against him. However, he has indicated in the past that he will step down if needed to avoid a constitutional crisis, where one branch of government goes against the others. What happens next is unclear, but political uncertainty is likely to remain elevated for several months at least.

Policy, not politics
From an investment point of view, what matters most is policy, not politics. The one thing Ramaphosa has been criticised for consistently is the consensus-building approach that has considerably slowed down making key decisions and implementing them. But the benefit of this approach is that the policies of his administration should broadly remain in place if he is replaced, at least until the 2024 elections. Thereafter, we may well enter the era of coalition politics with all the potential risks and benefits that might entail.

Probably, the most important reform Ramaphosa instituted was deregulating the electricity market and allowing private generation. This genie is now firmly out of the bottle and will not be put back. An end to loadshedding is in sight, not because Eskom has been fixed, but because private businesses and households (and a few municipalities) can take matters into their own hands.

Amid the uncertainty, there are two important things to remember. Being able to hold leaders accountable is a good thing, not a bad thing, even if the leader in question is very popular. It is a core part of what democracy is about. Secondly, global dynamics ultimately matter more for domestic bonds, equities and the rand than local events. The latter can cause major short-term fluctuations but are typically priced in and out very quickly as investor perceptions change.

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