It’s a cliché by now, but if there is one thing the stock market does not like, it is uncertainty. And elections, by their very nature, create plenty of it.
The markets reflect this. They have priced in the poor economy, rising levels of government debt and the absence of reforms needed to kick-start growth. A good yardstick on how much bad news has been priced in, is the yield on South African government bonds. Currently, the 10-year government bond yield is just over 9% compared to inflation of 4.6% — giving a real yield of about 4.5%.
In an unusual move for investment banks, Colin Coleman, CEO of Goldman Sachs in South Africa, spoke out publicly in favour of a strong showing for the ANC. A strong result would provide a mandate for structural reform and would trigger a rally in asset prices, he said. The bad news is that one of the key long-term themes at work in the SA market is the decline in long-term growth.The initial drop in GDP growth in 2009 was largely due to the external shock of the global financial crisis; however, the subsequent deterioration is largely self-inflicted,” Orford explains.
The participants believe that there is only a one-third chance of growth-boosting reform after the elections, but that President Cyril Ramaphosa will survive until 2022 at least.The view that there is a link between a strong result for the ANC and a mandate for reform is misguided, according to our research,” says Peter Attard Montalto, Intellidex head of capital markets.The NEC doesn’t change whatever the result, and that is the issue.
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