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Elections have come and gone and its business as usual

15 May 2019 Larry Masson, Financial Adviser at Momentum Consult

Lasts week’s general elections are unlikely to have had a long-term effect on the financial services industry, as the factors that underpin the economy have remained unchanged.

The outcome of the general elections is expected to have a noticeable, albeit short-lived, effect on the country’s economy, but South Africans should not expect to see drastic changes over night.

This is according to Larry Masson, Financial Adviser at Momentum Consult, who points out that markets react to events in the short term, but this will not change the structural issues that influence the economy.

The financial services industry – as all other sectors of the economy – will experience short-term gains or losses in light of the outcome of the elections, however, the results are not expected to have a lasting effect on business or consumers.

“A proper majority voted for the ANC, and this is good news for financial markets, as markets hate uncertainty. What this has done is show confidence in President Cyril Ramaphosa and give him a chance to continue rolling out his economic stimulus plan and continue his fight against corruption,” says Masson.

With the ANC gaining a clear majority in the elections, bond yields have moved sharply lower, domestic stocks moved sharply higher and the rand is sitting strong at approximately R14 to the US dollar.

However, Masson says any currency gains will also be short-lived, as the fundamentals that underpin the value of the rand will remain unchanged. Positive currency movements will obviously have a positive impact on the financial services industry, boosting shares in banks and insurance companies, but only in the short-term.

The majority vote for ANC – a rubberstamp for Ramaphosa’s next five-year term as the country’s president – will set a course for better policy certainty, improved oversight of state-owned enterprises and a positive outlook for economic growth.

In the long-term, this could provide the certainty and strong leadership that financial markets need, so this is a sector that would thus prefer to see Ramaphosa serve another term or two as head of state, says Masson.

“With Ramaphosa’s presidency being rubberstamped through a clear majority, we will enjoy investor confidence and a strengthening of market and economic growth, as well as the implementation of Ramaphosa’s economic stimulus plan,” says Masson.

He says the biggest gain immediately following the elections predicted to last beyond the short term would be in the area of foreign direct investment with international investors approving seeing Ramaphosa elected for another term.

“The ANC majority of 57% will create the perception of long-term stability for foreign investors. Foreign investors are familiar with ANC policy and continuity would stimulate an inflow of money into the country,” concludes Masson.

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