Post-election turmoil: Uncertainty grips markets as coalition talks begin

South Africa's post-election uncertainty rattles investors as coalition talks loom. With no clear winner, parties vie for power amid economic concerns. ANC's historic loss prompts potential coalition with rivals, affecting policy direction. Rand volatility surges, reflecting market jitters. Amidst turmoil, concerns of populist shifts and internal party clashes loom large..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..By Colleen Goko and S'thembile Cele.Investors braced for further upheaval in South Africa's financial markets in the wake of elections that produced no outright winner, with the outcome of coalition talks and future policy direction remaining highly uncertain..Rand volatility over the next month jumped Monday, briefly touching September highs. The rand traded 0.3% stronger by 11:53 a.m. In Johannesburg at 18.7375 per US dollar. If the performance holds, this will be the currency's first day of gains in four. Yields on benchmark local-currency debt fell nine basis points to 12.1% and stocks snapped four days of losses, climbing by the most in a day in nearly a month..The African National Congress fell short of a parliamentary majority for the first time since taking power under Nelson Mandela in 1994, as its supporters voiced anger about poverty, unemployment and crime by boycotting the polls or backing rivals. It must now rely on at least one other big party to retain power, and its choice of partner will shape the country's path over the next five years with repercussions for citizens, businesses and investors alike. .The ANC garnered 40.2% of the votes cast on May 29. The centrist Democratic Alliance got 21.8%, former President Jacob Zuma's new uMkhonto weSizwe Party, or MKP, 14.6% and the leftist Economic Freedom Fighters 9.5%. .The latter two parties, which both splintered from the ANC, favor increased state spending and the nationalization of mines and the central bank. The prospects of them joining the government and demanding populist policy changes is weighing on South African assets.."Investors should be very worried because South Africa is at a fork in the road," said Anne Frühauf, the managing director of risk adviser Teneo. "Right now, almost any coalition outcome is possible.".The rand has slipped 2.6% against the dollar since voting began on May 29 as the extent of the ANC's losses became apparent. The cost of insuring the nation's debt has risen by about 19 basis points in that time to 242.3 basis points. .The ANC won't be "reckless" in choosing a coalition partner, Finance Minister Enoch Godongwana said in a Bloomberg interview. "The ANC remains the biggest party and economic policy will remain ours and so there is no risk to stability or threat to investor confidence." .A coalition with the Democratic Alliance would be the most market-positive, "but getting there won't be easy and will undoubtedly exert pressure on ANC cohesion," said Mark Bohlund, senior credit research analyst at REDD Intelligence. "I think the uncertainty will continue to weigh on the rand, with a record breach of 20 per US dollar a distinct possibility." .While the leaders of the main parties met over the weekend to chart a way forward, they've yet to begin negotiating with each other in earnest and it will likely take several days before any agreement is struck. The National Assembly must meet to elect a president within 14 days of the declaration of the election results, although the law provides for an extension if no candidate can be agreed..All the main parties have said they are open to a deal, although Zuma's MKP has made any partnership with the ANC contingent on it ousting President Cyril Ramaphosa — a condition ANC Secretary-General Fikile Mbalula said it will never accept. .While Ramaphosa's allies favor a coalition with the DA, that option will encounter opposition within the ANC's ranks, according to people with knowledge of the situation. The ANC is considering a range of options to work with rivals, including a possibility it may agreed to appoint a finance minister from outside the party, other insiders said. The president can appoint two people to cabinet who aren't members of parliament.."While opposition parties like the DA, MK and EFF will push hard to secure a deal, equally important will be the ANC's internal dynamics," Frühauf said. "This could be a big internal fight." .The DA agreed on Sunday to initiate exploratory talks with rivals to avoid what it refers to as a "doomsday coalition" grouping the ANC with Zuma's party and the EFF..DA leaders are leaning toward seeking a formal coalition with the ANC in which they would receive some cabinet posts and control of several parliamentary portfolio committees. Some DA leaders oppose the idea, the people said, and a decision has yet to be taken..EFF leader Julius Malema, who established the party in 2013 after he was expelled from the ANC, said he's open to cooperating with it..Zuma's allegation the vote count was marred remains a concern. While the electoral commission said the vote was clean and fair, his claim could spark unrest, particularly in the eastern KwaZulu-Natal province where the MKP won almost half the vote..Zuma served for almost nine scandal-marred years as president before the ANC forced him to step down. His arrest for refusing to testify before a graft inquiry sparked the worst rioting and looting the country has seen since the end of apartheid, claiming the lives of 354 people..© 2024 Bloomberg L.P..Read more: De Beer: SA – a new radical, separatist State.Jittery markets struggle with South Africa coalition puzzle.By Olivia Kumwenda-Mtambo and Karin Strohecker.The prospect of South Africa's first coalition government of the post-apartheid era is likely to keep markets jittery for months, but the weakened ANC party could soothe some nerves by seeking a deal with the pro-business Democratic Alliance, investors say..South Africa's currency and bonds fell as election results showed the African National Congress's (ANC) vote share tumbling to 40% with over 97% of polling stations counted – far short of a majority..The ANC had been forecast to lose its majority with final results expected to be released on Sunday. But the scale of the losses has blown the door wide open for a myriad of political outcomes that could shape the economic and fiscal trajectory of Africa's most industrialised nation for years to come.."We are right in the area of most uncertainty in term of what the make-up of the government is going to be," said Kieran Curtis at asset management firm abrdn in London.."The ANC have been very, very seriously kicked.".Markets were swift to react. The rand has weakened 1.7% from pre-election levels, briefly touching a five week low on Friday..International bonds lost as much as two cents, with some longer-dated maturities trading below or close to the 70 cents in the dollar mark below which debt is considered distressed..And the cost of insuring exposure to South Africa's international debt spiked to levels last seen in April – as did yields on domestic bonds..Key now will be coalition talks, with investors trying to assess the implications of the various combinations..Potential partners for the ANC are the centre-right Democratic Alliance (DA), the far-left Economic Freedom Fighters (EFF) party, or former President Jacob Zuma's newly-formed uMkhonto weSizwe (MK) party – in second place and a surprise strong performer in the ballot.."The DA obviously is the favourite choice for investors," said Ray Jyan, London-based portfolio manager at Europe's largest asset manager Amundi, adding an agreement on such a coalition could spark a rally in South African assets.."The DA has proven to be very efficient in terms of execution of policies and in terms of anti-corruption as well … They (the ANC, President Cyril) Ramaphosa have a decent plan in terms of reform, the problem is always execution.".COMBINATIONS.Other combinations will be more challenging for investors.."The reality is if we do end up with an ANC-EFF or ANC-MK (coalition) there will be initial market jitters," said Mandisa Zavala, head of asset allocation at financial firm Alexforbes in Johannesburg, predicting this could spark an outflow from government bonds and pressure on the currency..The stakes are high, as the new government will have to tackle long-term problems, with South Africa's economic growth averaging just 0.8% since 2012, unemployment among the highest in the world, and power cuts ever present..But any form of coalition is likely to bring uncertainty, with investors particularly worried that the concessions involved in forging a deal could lead to a ramp up in spending.."Our projections are for debt to continue increasing. If there is a coalition or minority government for which various preferences for spending have to be accommodated, that may result in further spending pressure," said Dennis Shen, Berlin-based senior director for sovereign and public sector at ratings agency Scope..Read also: 🔒 RW Johnson: DA's current leader is an accident waiting for a place to happen."The governability of South Africa may become even more difficult compared to the single-party rule. And that may present risk for the sovereign credit rating," said Shen, whose firm has a BB rating on the country with a stable outlook..Who will fill the key position of finance minister is another key question for markets – as is the independence of the central bank and its mandate, which has been a topic of debate within the ANC in recent years.."Any threats to the independence of the SARB (South Africa Reserve Bank) or any threats to getting to an overall balanced budget with reduced sovereign debt would also be frowned upon and would be felt firstly in the rand and then ultimately on the ground through diminished foreign investment," said Craig Pheiffer, chief investment strategist at asset manager Sasfin Wealth in Johannesburg. .SOURCE: REUTERS.Read also:.🔒 Weakened ANC faces coalition conundrum after election slump🔒 ANC's election disaster puts Ramaphosa's leadership in jeopardyWhat I'm thinking post-Election '24: Terrence Corrigan

Post-election turmoil: Uncertainty grips markets as coalition talks begin

Related Stories

Rob Hersov: The Mafube template - saving SA one municipality at a time

"BEE pits black against white": The trailblazer who says empowerment got it wrong — Sam Montši

How Leon Kluge, SA’s unofficial ambassador for Cape flora, struck gold at Chelsea for the third time

Trump's US health aid overhaul meets reality in Mozambique