Nicola Mawson
The elation seen in the markets and reflected in the local currency after the news that the country would have a Government of National Unity (GNU) has worn off as the ANC and DA – South Africa’s two largest parties – seemingly hit an impasse over key Cabinet positions.
This comes as disagreements continue to delay the constitution of the GNU as the DA demanded the deputy president position along with 11 ministers, deputy ministers and the right to appoint their directors-general, while President Cyril Ramaphosa said the GNU cannot be preoccupied with jockeying for positions, tussles over appointments or squabbles within and between parties.
As a result, market gains have been eroded as investors become rattled over the uncertainty in determining key leaders for the new administration.
The rand, which lost more than 1% to more than R18 to the dollar, weakened 0.8% to R18.15 by 5pm, although the JSE’s all share index performed better, notching a slight gain of 0.6% to 80 263 points as its solid run last week petered out.
The “suspended anticipation” as the ANC and DA tussle over Cabinet positions, including in ministries such as Mineral Resources and Energy as well as Trade, Industry and Competition, has caused the JSE’s all share index to be what Kia Brokers managing member Gerald Kahn called “lustreless and currently showing no direction”.
Kahn noted that another consequence has been that the rand has started slipping back again and looks to be heading to the R18.50 mark, while the JSE retracted again after a strong run since the initial announcement of a GNU.
The rand had strengthened to under R17 to the dollar on the announcement of the proposed new administration.
Peter Armitage, CEO of Anchor Capital, concurred that there has been some pullback of the 10% to 20% gains that shares exposed to the local economy experienced last week.
Stocks directly affected by political or economic moves locally, SA-Inc shares, had “a big bump over the last 10 days since it emerged that the likely government would include progressive forces that would be acceptable to the market”, he said.
Armitage said the retracement comes as the final negotiations and haggling for Cabinet and director-general positions takes place.
“Investors are not willing to place further bets or drive share prices up further until this uncertainty passes,” he said.
Armitage also noted that, should the GNU not materialise positively for the market, the rand could weaken again and share prices retrace further.
“They are both serving as a barometer of investment sentiment,” he said.
Fund managers and analysts were closely watching news and social media feeds to get some insight into the outcome, said Armitage.
“Fund managers, both locally and globally, are in aggregate underweight on these shares, which are still trading at historically very low valuations. There is still upside potential if a reasonable outcome can be achieved,” said Armitage.
Old Mutual Wealth investment strategist Izak Odendaal said it was not surprising that markets were consolidating and waiting for fresh direction after such a strong run last week.
Odendaal said that it might be too much to expect the GNU to serve out a full five-year term, but “a lot can be achieved in 24 months to cement key reforms”.
South African equities trade at a discount to emerging markets and have room to rerate relative to peers, said Odendaal.
The rand, too, has underperformed other commodity-producing emerging markets for most of the past three years, but now has room to make up some ground on a comparative basis, he said.
“Unpredictable things often happen. Sometimes they have positive results,” said Odendaal.
BUSINESS REPORT