Investors braced for further upheaval in South Africa\u2019s financial markets in the wake of elections that produced no outright winner, with the outcome of coalition talks remaining highly uncertain.<\/p>\n\n\n\n
Rand volatility over the next month jumped Monday, briefly touching September highs before paring the gain. The rand fell for a fourth day, slipping 0.4% to 18.8739 per dollar as of 09h19 in Johannesburg. <\/p>\n\n\n\n
The yield on benchmark debt climbed four basis points to 12.26%. The main stock index, on the other hand, opened higher, snapping four days of losses.<\/p>\n\n\n\n
The African National Congress fell short of a parliamentary majority for the first time since it took power three decades ago, as its supporters voiced their anger about endemic poverty, unemployment and crime by boycotting the polls or backing its rivals.<\/p>\n\n\n\n
It won 40.2% of the votes cast on May 29, results released by late Sunday showed.<\/p>\n\n\n\n
The centrist Democratic Alliance garnered 21.8% support, former President Jacob Zuma\u2019s new uMkhonto weSizwe Party, or MKP, 14.6% and the leftist Economic Freedom Fighters 9.5%. <\/p>\n\n\n\n
The latter parties both favour increased state spending and the nationalization of mines and the central bank, and the prospects of them joining the government and demanding populist policy changes are weighing on South Africa\u2019s currency and debt.<\/p>\n\n\n\n
\u201cInvestors should be very worried because South Africa is at a fork in the road<\/strong>,\u201d said Anne Fr\u00fchauf, the managing director of risk adviser Teneo. \u201cRight now, almost any coalition outcome is possible<\/strong>.\u201d<\/p>\n\n\n\n The rand has slumped 2.9% against the dollar since voting began on May 29 as the extent of the ANC\u2019s losses became apparent. The cost of insuring the nation\u2019s debt has risen by about 19 basis points in that time to 242.3 basis points. <\/p>\n\n\n\n A coalition with the Democratic Alliance would be the most market-positive, \u201cbut getting there won\u2019t be easy and will undoubtedly exert pressure on ANC cohesion,\u201d said Mark Bohlund, senior credit research analyst at REDD Intelligence.<\/p>\n\n\n\n \u201cI think the uncertainty will continue to weigh on the rand, with a record breach of 20 per US dollar a distinct possibility,\u201d he said. <\/p>\n\n\n\n \u201cThe weaker rand is likely to trigger some repatriation of overseas funds in the near term. But the expectations of more constrained policy making going forward will increase the incentives for South African investors.\u201d\u00a0<\/p>\n\n\n\n While the leaders of the main parties met over the weekend to chart a way forward, they\u2019ve yet to begin negotiating with each other in earnest, and it will likely take several days before any agreement is struck.<\/p>\n\n\n\n The National Assembly must meet to elect a president within 14 days of the declaration of the election results, although the law provides for an extension if no candidate can be agreed.<\/p>\n\n\n\n All the main parties have said they are open to a deal, although Zuma\u2019s MKP has made any partnership with the ANC contingent on it ousting President Cyril Ramaphosa \u2014 a condition ANC Secretary-General Fikile Mbalula said it will never accept. <\/p>\n\n\n\n While Ramaphosa\u2019s allies favour a coalition with the DA, that option will encounter major opposition within the ANC\u2019s ranks, according to people with knowledge of the situation who asked not to be identified because the discussions are private.<\/p>\n\n\n\n \u201cWhile opposition parties like the DA, MK and EFF will push hard to secure a deal, equally important will be the ANC\u2019s internal dynamics,\u201d Fr\u00fchauf said. \u201cThis could be a big internal fight.\u201d <\/p>\n\n\n\n Even if a power-sharing accord can be agreed to, there\u2019s no guarantee it will hold if deals struck at the municipal level in South Africa are anything to go by. <\/p>\n\n\n\n Power has changed hands in several of the main cities that are ruled by multiple parties as allegiances have shifted, and the instability has caused the delivery of water, refuse removal and other services to grind to a near-halt.\u00a0<\/p>\n\n\n\n Zuma\u2019s allegation that the vote count was marred by inconsistencies and his party\u2019s warning that it may insist on a recount is another concern. <\/p>\n\n\n\n While the electoral commission denies that there were material discrepancies, a contested outcome doesn\u2019t bode well for stability \u2014 particularly in the eastern KwaZulu-Natal province, where the MKP won almost half the vote.<\/p>\n\n\n\n Zuma served for almost nine scandal-marred years as president before the ANC forced him to step down to stem a loss of electoral support. <\/p>\n\n\n\n His arrest for refusing to testify before a graft inquiry sparked the worst rioting and looting the country has seen since the end of apartheid, claiming the lives of 354 people.<\/p>\n\n\n\n
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