South Africa’s financial system will remain resilient despite the highly contested coalition talks between political parties and weak domestic market conditions, the Reserve Bank (Sarb) said.
The central bank emphasised that SA’s market should remain buoyant even with geo-political tensions caused by the more than 70 countries going to the polls this year.
The Reserve Bank said possible policy changes may cause the markets to become volatile for a certain period.
The ANC’s National Executive Committee is currently meeting at the Birchwood Hotel in the Ekurhuleni, where they are expected to decide on what route the country will take in terms of forming a coalition government for the seventh administration.
IOL reported on Wednesday that the ANC’s National Working Committee had proposed to the NEC a National Government of Unity comprising parties such as the DA, EFF, IFP, PA and NFP.
There had been no engagements with the MK, despite approaches made to the party led by former president Jacob Zuma. The MK denied it had been approached by the ANC on Wednesday.
ANC secretary general Fikile Mbalula told the media outside the Birchwood Hotel on Thursday that President Cyril Ramaphosa would make an announcement at 6pm on Thursday evening.
As the NEC met inside the hotel, a handful of ANC activists and supporters, including Zuma’s daughter Thuthukile, Esethu Hasane and Kay Sexwale, held a picket imploring the ANC not to work with the DA in the seventh administration.
Rand takes a hit
This week the rand has been taking major knocks against global currencies. The rand was trading at around R18.90 against the dollar at 11am on Thursday.
The rand was trading around R20.57 to the euro and around R24.18 to the pound.
On Wednesday, the rand was trading at R18.68 to the dollar at 9:20am but weakened even further to around R18.96 to the dollar by the close of business.
Markets will rally
Standard Bank chief executive Sim Tshabalala, said earlier this week that South Africa’s capital markets would rally once the election processes have been finalised.
He said soon as the next government takes office, the bank’s data suggests that the markets will rally, have more stability and perform better.
"I do think that we will have stability," Tshabalala said.
He argued that there will be some teething issues but in the end, South Africa’s institutions will prevail.
"I have got no doubt that the institutions of South Africa will continue to function."
"South Africa has had 10 elections since 1980. Of those 10 elections, eight have been followed by a rally in equities, in the bond market and in currencies. And the data supports the view that we may have the same happen this time," he said.
Investors be warned
Last week Andrew Bahlmann, managing director of Deal Leaders Africa cautioned investors that the the South African markets may not react favourably to a coalition government.
Bahlmann explained that the markets do not like the uncertainty of unstable coalitions.
He said that the markets would undoubtedly prefer a coalition that included the ANC and the “market-friendly”DA.
The markets would prefer an ANC/DA coalition over an ANC-led coalition with a populist party that advocates for the nationalisation of mines and banks, Bahlmann added.
“The possibility of an unstable coalition would cause concern in financial markets, as such, a coalition would likely demand policy changes that could discourage investment,” he emphasised.
Bahlmann argued that investors often prefer a stable or appreciating currency to mitigate risks.
“Uncertainty surrounding political events, economic policies, or global market conditions can contribute to currency volatility. When investors perceive uncertainty, they tend to seek safer assets, which can lead to a weakening currency,” he said.
– Additional reporting by Kamogelo Moichela.
IOL