The battle South Africa can’t ignore
The United States will be heading to the polls next week to elect its next president – the results of which will reverberate through global markets, including South Africa.
The vote will take place on 5 November, with two candidates—former president Donald Trump and current Vice President Kamala Harris—the only real contenders in the race, each polling at around 50% support from the Republican and Democratic voter bases.
While the US election feels like a world away from anyone in South Africa, the winner will ultimately set the USA’s course for the next few years, which could have major implications for local and emerging markets.
The longer-term impact of a Trump or Harris presidency will take time to filter through markets—particularly their differing trade and foreign relations policies. But the area most South Africans will feel the immediate impact is in the rand.
According to Investec chief economist Annabel Bishop, a Trump presidency will be worse for the rand, largely because his leadership style is characterised by protectionism and sanctions, driving uncertainty.
Harris, meanwhile, has given no indication that policies will shift from what was seen in the Biden presidency.
The negative impact of a potential Trump win on the rand has already been seen.
The rand has been on the back foot over the past quarter, averaging R17.53/USD as global risk aversion has lifted in the run-up to the US election, as well as on the escalation in geopolitical tensions, weak global production and a moderation in US dovishness, Bishop said.
“In particular, the rand recently has lost ground on gains made by ex-President Donald Trump in some recent surveys on the upcoming US election on concerns of increased protectionism, as tariffs and sanctions are expected to rise.”
Bishop said the rand, in general, could be expected to be weaker under a Trump Presidency.
“South Africa has come under fire before from US tariffs when Trump was in the Whitehouse, while global economic growth and risk aversion was negatively impacted,” she said.
According to Bloomberg, “The former president has touted baseline 20% tariffs on all imports, and as much as 60% if they come from China. Harris hasn’t signalled any major departure from the trade policies of the Biden administration”.
The expected case is a Harris win, according to Bishop, but polling out the US puts the whole affair coming down to essentially a coin flip, with the outcome riding on a few swing states.
Economists at the Bureau for Economic Research have also flagged the risks of the coming election.
“While the focus is mainly on the tight race between Kamala Harris and Donald Trump, it is important to mention that both chambers of Congress are up for grabs,” it said.
The current Democratic Senate is likely to swing to the Republicans, as many seats in Republican-leaning states are up for re-election.
The House of Representatives is more closely contested.
The number crunchers estimate there is a more than 50% chance of the new president having to work with at least one chamber “controlled” by the opposition party – this could make for sluggish policymaking when approval of both chambers is required.
“Pollsters, however, also put a bigger possibility on a Republican trifecta—one party winning the presidency and both chambers—vs a Democratic one. For now, the race for the presidency seems very tight and it is difficult to call who will win next week,” the BER said.
“Only time will tell how, and if, the new President will change the policy landscape in the US and how this will impact the rest of the world.”
Investors turn sour
On top of the US election, South African markets also have to contend with shifting global sentiment related to interest rates, which economists say shouldn’t be affected by the election outcome, at least in the short term.
Notably, investors have soured on South Africa, with foreigners having sold off South African equities on a net basis over October.
This comes after foreigners were substantial purchasers of Emerging Market portfolio assets in September.
“The yield on SA’s ten-year government bond has risen this month so far, from 9.95% at the end of September, to above 10.50%, as foreigners sold -R2.8 billion worth of SA bonds so far this month, after purchasing R16.6 billion in September (both net),” Bishop said.
This is also largely reflective of the tone set by the US Fed on interest rates, where it has indicated that there will be a much slower cutting cycle than expected after an initial 50 basis point cut in September.
As a result, the rand has weakened even more, hitting as high as R17.80 to the dollar this past week.
South Africa’s own rate-cutting cycle is also expected to be slow, with a 25bp cut expected at the last MPC meeting later in November.
The BER noted that the rand has also reacted negatively to the medium-term budget presented this week, which can be interpreted as it being “underwhelming”.
“While the lack of surprises can be seen as a good thing, there were arguably also missed opportunities to cement further policy certainty, which would have been important for sustaining the recent uptick in sentiment,” it said.
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