Even though most polls are pointing to a clear ANC victory, it is also important to consider alternative outcomes and the potential impact on investors, says Wynand Gouws, a financial planner at GM Investments.
And despite much speculation on the direction of the vote, specifically with ‘traditional’ ANC voters returning to the polls, most of the data indicates that the ruling party will win the 2019 election with a clear majority – somewhere above 55%.
“Johan Els, chief economist at Old Mutual Investment Group reinforces the ‘base case’ view of a clear ANC majority vote, which would be a vote of confidence in Cyril Ramaphosa and the intent to transform the economy, rebuild confidence, grow the economy and fight corruption,” Gouws said.
“This could well indicate the start of a new ‘Goldilocks‘ phase for the SA economy, specifically if this coincides with lower yet more synchronised global growth.”
However, two other scenarios could also play out – in two opposing extremes. One where South Africa emerges with the most fortunes – dubbed a Cinderella Story – and one where things go south for the ANC resulting in a loss of credibility.
1. A Cinderella Story
Given the sliding fortunes of the country in recent years, Gouws said that the country could see a Cinderella tale scenario.
In this scenario, the ANC would get a clear victory (above 55%), and would include increased investor and business confidence; increased fixed investment spending, associated growth in production; consistent GDP growth; growth in employment; and growth in consumer spending – a positive reinforcing virtuous cycle.
“Under this scenario you would see a strengthening of the rand; this would be supportive of SA shares, specifically shares that are geared to the SA economy. Under this scenario we could see a recovery in GDP to above the 2% level.
“This scenario could see a significant strengthening of the rand that could surprise investors. If this scenario coincides with slower but ‘synchronised’ global growth and we see the implementation of the ANC election promises, this could spark the beginning of our Cinderella story,” said Gouws.
2. The Goldilocks phase
A Goldilocks economy is described as being not too hot or cold, and includes sustained moderate economic growth, with low inflation, and allowing a market-friendly monetary policy.
According to Coronation Fund Managers, the way in which government manages the Eskom crisis will give some insight into government’s broader capacity for reform, said Gouws.
This could be one of, if not the most important ‘flag’ to watch out for in the Goldilocks scenario.
Within this scenario, business and investors start believing in, and investing in SA again and the political “shackles of growth” are removed, he said.
3. Loss of credibility
In an alternative scenario; the ANC votes fall significantly below 55% and Cyril Ramaphosa loses credibility, the financial planner said.
“Even though the ‘margin’ and extent of the above is debatable, the symptoms would be; the lack of capacity to deal with the reforms required at Eskom, continued corruption, not implementing market friendly policies, a lack of foreign investment, business and consumer confidence continuing to slide. This will be manifested through the transmission mechanism, a weakening rand.”
This scenario would be negative for SA Inc. and will clearly be reflected in the rand as the transmission mechanism.
“The rand is likely to weaken significantly and the loss of voter and investor confidence would be reflected in the JSE with a weakening in share prices, confidence and GDP.
“Even though this scenario could cause significant short term pain, Coronation Fund Managers analysts do believe that, should this unfold, this could be positive for the economy in the long term as this would require help from the IMF which comes with pre-conditions to structurally reform,” Gouws said.
Black swan events
While the country’s direction post elections is likely to fall somewhere within these two scenarios, Gouws said it is important to consider the alternatives. “It is important to consider different scenario’s as part of your financial plan, don’t get lost in only focusing on the doomsayers or only focusing on the eternal optimists.”
It is important to have the right combination of asset managers and investment funds that allow some flexibility to adjust to prevailing and anticipated market conditions, he said.
Consider how your financial plan caters for, or is positioned for a “black swan” event, he said.
Even though, a black swan event by its very nature is unpredictable – there are a number of important questions investors can consider to plan for unforeseen events:
- What are my “emergency” fund requirements i.e. in a crisis how much money do I need to survive, have I made provision for this in my financial plan?
- How will my retirement income be impacted by an unplanned market event, has appropriate provision been made to fund i.e. 1-3 years income?
- What will the impact of an interest rate spike be on my ability to service debt and my overall financial plan?