Something very strange is happening in South Africa

Renowned economist Dawie Roodt said South Africa’s markets are behaving strangely, contrary to what one would expect considering the actions of the United States.

Over the last few weeks, United States President Donald Trump and his allies have criticised South Africa’s Expropriations Act, black empowerment rules, and race-based policies.

Earlier this month, Trump signed an executive order formalising his earlier announcement that he would freeze assistance to South Africa.

Joel Pollak, the frontrunner to become the United States Ambassador to South Africa, warned that this is only the start.

He said more action is possible should South Africa not listen to the United States and take action on the issues highlighted by President Trump.

Pollak fears that it may lose its African Growth and Opportunity Act (AGOA) benefits unless South Africa acts on these issues.

He added that South Africa could also face tariffs and even sanctions from the United States, which can have devastating consequences for the economy.

In 2024, South Africa exported goods worth R157 billion to the United States. The biggest exports were precious metals and vehicles.

Over the last year, South Africa imported goods worth R120 billion, including machinery, mineral products, vehicles, and aircraft.

This means South Africa has an extremely valuable trade surplus of R36 billion with the United States.

Roodt said losing its AGOA benefits from the United States could cost South Africa 0.2 percentage points in economic growth.

However, the biggest risk is that the United States will stop supporting South Africa’s capital markets, which will be very painful.

He explained that the Americans and Europeans are by far the biggest investors in the South African markets.

“South Africa’s capital markets are very liquid and very easy for foreigners to access. It also provides a good yield,” he said.

Preventing the United States from investing in the capital markets will be far more damaging to the South African economy than losing its AGOA benefits.

South Africa’s markets behaving very strangely

One would expect the local markets and the rand to react negatively to the increased tension between South Africa and the United States.

South Africa’s economy is tiny in comparison with the United States, which makes it vulnerable to tensions between the two countries.

“You would have expected the rand and South African equity and bond markets to take a knock. The opposite happened,” Roodt said.

South African markets performed well despite Trump’s order and the threats of losing its AGOA benefits, tariffs, and sanctions.

Over the last two weeks, the rand strengthened from R18.99 to the US Dollar to R18.37 on 15 February 2025.

The equity market also performed well. The JSE Top 40 Index increased significantly in February and reached an all-time high last week.

Roodt said it was difficult to explain why the market behaved in the way it did after Trump’s executive order and the recent developments.

The only explanation he could see was that the market expects South Africa to reach an agreement with the Trump administration.

He said in North America, Trump imposed tariffs and levies on Canada and Mexico, which caused a stir in these countries.

“In all these cases, Donald Trump won the war,” he said, referring to these countries giving into the US President’s demand.

A similar situation may unfold in South Africa, where the market expects South Africa to agree to most of Trump’s demands.

Roodt said the only explanation he could see for South Africa’s strange market reaction is that investors do not expect a trade war with the United States.

“The South African markets are expecting the South African government to bend the knee before Donald Trump,” he said.

“The only reason I could see is that the market expects the fight between South Africa and the United States to go Donald Trump’s way.”