Investors should brace for tumultuous political year, says Standard Bank

Political party posters mounted on poles along Maunde Street in Atteridgeville ahead of the coming national elections. Picture: Oupa Mokoena / Independent Newspapers

Political party posters mounted on poles along Maunde Street in Atteridgeville ahead of the coming national elections. Picture: Oupa Mokoena / Independent Newspapers

Published Mar 22, 2024


Standard Bank says the ruling ANC is likely to notch up sufficient votes in the May 29 election to avoid a coalition that could steer policy towards a more populist stance, although it cautioned investors to brace for a "tumultuous" period ahead of the key poll.

There is widespread sentiment that public support for the ruling ANC is dwindling as a result of growing crime, poor governance and corruption, as well as inefficiencies in key sectors such as as rail transport and energy.

However, Standard Bank analysts believe the ANC will garner sufficient votes to avoid a coalition in the coming election.

“We can expect an election result [that will see] the ANC garnering sufficient votes, negating the need for a coalition arrangement with a sizeable political party that may steer policy in a more populist direction,” Standard Bank said in an interview with Business Report.

However, Standard Bank reckons that in the run-up to the elections, “investors should brace for a tumultuous political year” as “political uncertainty and risk aversion may keep investors sidelined and underweight” in South African equities.

Analysts at Bank of America said this week that investors were seeing “an attractive market” in South Africa, but were “looking for a spark” for the economy and local markets.

“A strong majority (of investors) are in a wait-and-see mode, (so) investors are going to weigh up what they do before elections and they might wait and see to see what happens,” said Bank of America emerging markets strategist, Morris John Stewart.

But for Standard Bank, “the political uncertainty going into elections should keep foreign investors largely defensively positioned in defensive sectors” such as food and drug retailers and financials. This was likely to persist in the near term, “until short interest rate relief is more imminent and there is greater political” visibility or clarity.

Regarding inflation and interest headwinds, Statistics South Africa said this week that inflation had crept up, with medical insurance a big contributor. South African grocery retailers have also been struggling, with consumers trending down to value propositions.

Standard Bank said its base case outlook suggested there would be an increase in investment in certain sectors.

“If our base-case outlook of the ANC garnering sufficient votes plays out, implying policy continuity, we expect foreign investors to add risk to portfolios and start investing in interest rate sensitive equity sectors such as general retailers and industrials,” the South African and regional lender explained.

Industrials and general retailers had, however, largely been sidelined by investors since the onset of Covid-19, with the South African jobs-recovery cycle lagging emerging market peers.

Standard Bank, nonetheless, expects renewed investor interest in these sectors in the second half of this year, based on prospects for monetary easing and improved job creation prospects as South Africa’s energy constraints ease.

In any case, strategists focusing on South Africa at Standard Bank view 2024 as a year of two halves. In the first half, economic headwinds are likely to see South African equities “tread water until clarity emerges on the general elections in May and as investors await the onset of monetary” easing.

“But in H2 2024, tailwinds should emerge as global and South Africa’s interest rate relief works through, as well as expected improvements in energy supply contributing to an uplift in growth.”

In spite of all this, attractive areas for South African investors included export-oriented companies that benefit from low and rand denominated costs, but fully export their products, as well as “well-managed industrial companies whose focus is production for local consumptions”.

These companies had the technical advantages to be efficient and exclusively producing for the local South African and Southern African markets.