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Rand steady as traders wait for political dice to stop rolling

May 09 2019 15:14
Colleen Goko, Bloomberg

The rand gained for a third day on Thursday as South Africa’s election results continued to trickle in, but don’t be fooled: the currency could tip either way as the final balance of power becomes clear.

With less than half the votes counted, the ANC has a strong lead, though with a reduced majority compared with the previous election. The picture could change as results from outlying rural districts - which traditionally favour the ANC - are tallied. At 13:15 in Johannesburg, the ANC had about 56% of the vote nationally, followed by the Democratic Alliance with about 24%.

A convincing win for the ANC would strengthen President Cyril Ramaphosa’s hand as he implements measures to revive a flagging economy. That would support South African assets, according to Rand Merchant Bank, while a weak showing would undermine investor confidence and dampen demand for South Africa’s rand, stocks and bonds.

“The more the ANC nudges towards the 58% to 60% area, the more the positive sentiment in the rand and bonds,” said Matete Thulare, a Johannesburg-based analyst at Rand Merchant Bank. “Any figure going below that would bring negative sentiment as this would likely mean Ramaphosa doesn’t have a proper mandate, and would limit his policy reform options and possibly embolden some of his critics within the party.”

The rand gained 0.2 percent to trade at R14.34/$ on Thursday even as most emerging-market peers weakened on concerns the US-China trade war is set to escalate. Yields on benchmark 2026 government bonds dropped 6 basis points to 8.54%.

Options pricing, however, suggests traders are hedging against price swings in coming days. While the rand’s one-week implied volatility versus the dollar has eased since Monday, it’s still higher than that of any other emerging-market currency except Turkey’s lira. The premium of options to sell the rand over those to buy over the next week is near the highest since March.

Global challenges 

Even if the rand rallies on a solid mandate for Ramaphosa, it still faces a challenging global backdrop. Developing-nation assets are under pressure as a deadline approaches for America and China to to raise reciprocal tariffs, an escalation in the trade war that would weigh on economic growth worldwide.

“Anxiety over the pace of global growth and rising geopolitical risk is generally expressed through the selling of risk assets,” said Nema Ramkhelawan-Bhana, an economist at FirstRand Bank in Johannesburg. “This could temper any rand gains arising from a neutral to positive election outcome, keeping local bond yields in check.”

Voting for the 400-member National Assembly and nine provincial legislatures ran until 21:00 on Wednesday, with final results scheduled to be released by May 11. A first meeting of the new Parliament has been provisionally set for May 22. The president is officially elected at that sitting.


Find everything you need to know about the 2019 National and Provincial Government Elections at our News24 Elections site, including the latest news and detailed, interactive maps for how South Africa has voted over the past 3 elections. Make sure your News24 app is updated to access all our elections coverage in one place. 

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