Convincing win by the ANC will boost stocks, say analysts

With the ANC expected to win Wednesday’s elections, equity-market investors will be watching for the victory margin to give them the chance to judge whether growth-boosting economic reforms will follow.

A narrative has developed among analysts that a decisive win for the ruling party will strengthen President Cyril Ramaphosa’s hand as he takes on populist elements in the party who are aligned to his predecessor Jacob Zuma and oppose policies that are seen as crucial to boosting the economy. On top of the list will be decisive action to resolve the financial and operational crisis at Eskom, which may ward off a credit downgrade from Moody’s Investors Service and boost sentiment towards South African assets.

“The closer to 60%, the more positive the market will be,” Garth Mackenzie, founder of Traders Corner, said at a BDFM/IG Markets Investment Dialogue event last week. “That’ll give the market the certainty it wants.”

The JSE had a good day on Friday, with the all share rising 1.01% to 59,335.9 points. Platinum miners led the gains, followed by banks, adding 4.01% and 2.02%, respectively.

Anglo American Platinum went up 3% to R733.34, Northam 5.63% to R60, Impala 4.57% to R59.27, and Lonmin 4.84% to R12.78.

The rand was the biggest gainer among the emerging-market currencies on the day after weaker-than-expected US wage growth fueled speculation that the Federal Reserve is unlikely to raise interest rates any time soon.

The fall in the dollar came after the US recorded wage growth of 0.2% in March, compared to the expected 0.3%, implying that inflation will remain under control.

Higher inflation in the US usually leads to investors betting on higher interest rates, which draws capital from other markets back to dollar-denominated assets.

Friday’s data came after the Fed’s open market committee released a dovish statement on Wednesday.

“Any signs of wage growth cooling could rekindle speculation over the Fed cutting interest rates — something that will punish the dollar,” said Lukman Otunuga, a research analyst at FXTM.

By 6pm on Friday the rand had gained 1.22% to R14.3615/$.

A strong showing by the ANC in the elections will probably lead to a stronger rand, lower bond yields and a re-rating of SA-focused stocks such as retailers and banks, Mackenzie said, echoing comments by Daria Parkhomenko, an analyst at RBC Capital Markets in New York, as reported by Bloomberg last week. RBC expects the rand to strengthen to R13.40/$ by year-end.

Food and drug retailers, which have suffered in the past year as the economy slipped into a recession in the first six months of 2018, and as consumers were hit by a VAT increase and record prices, have gained 2.74% in 2019 so far, trailing behind a 12.51% gain in the all-share index.

Thursday sees the release of local mining and manufacturing data. A Bloomberg consensus expects a slight improvement in mining, from the 7.5% year-on-year contraction recorded in February, to a fall of 5.2% in March.

Growth in the manufacturing sector is estimated to drop to 0.1% year-on year, from 0.6% previously.

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