Rand, JSE bleed as investors fret over coalition mix

South African markets had rallied in May on expectations that the next government would be headed by the ANC with a market-friendly coalition partner, signalling policy continuity.

Adriaan du Toit, director of emerging-market economic research at AllianceBernstein, said:

There was little, if any, risk premium as we went into the elections. So an outcome in line with these initial estimates would certainly put a brake on bullish bets.

Much would, however, depend on the shape of potential coalitions, Du Toit said.

“The range of political and policy outcomes remains wide, so we might be in limbo for a while.”

The rand’s implied volatility and bets for rand weakness over the next week against the dollar are trading at pandemic-era highs.

South Africa’s main stock index fell as much as 2.3%, the most since November. That means the country’s stocks have nearly wiped out year-to-date gains, compared with a 3.4% advance in 2024 for MSCI’s emerging-market benchmark.

“Before the vote, investors certainly looked at the South African election with a glass-half-full appraisal,” said Robert Hoodless, co-head of FX & Macro Analysis at InTouch Capital Markets. “Now, volatility in rates and FX might persist if coalition talks are needed — which is likely — and are troublesome.”

With 20% of election stations tallied, the opposition Democratic Alliance had 25.12% of the votes, while the populist Economic Freedom Fighters had 8.67%. uMkhonto weSizwe, or MKP, a new party headed by the country’s scandal-tainted former president, Jacob Zuma, had 8.18%. The ANC was at 42.92%, according to the latest verified results from the country’s electoral commission.

Opinion polls before the vote indicated that the ANC risked losing its majority and would have to enlist the support of one or more rivals to continue governing. 

There is an eclectic mix of parties for potential coalition negotiations, including the DA, led by John Steenhuisen, who promised two million new jobs. The EFF, under Julius Malema, has advocated increased corporate taxes and state custodianship of all land. The Inkatha Freedom Party was also seen as a likely coalition partner for the ANC, potentially in exchange for the premiership of KwaZulu-Natal province.

The MKP has drawn support from Zuma, who remains influential in KwaZulu-Natal.

“I think markets could get very nervous if coalition negotiations point to potential populist shifts,” said Du Toit.

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