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<\/figure><\/div>\n\n\nBefore the election, many on Wall Street had priced in the ANC, which secured about 45% of the vote and allowed<\/strong> the party to form a coalition with a smaller party. <\/p>\n\n\n\n However, the ANC secured\u00a0only 40.2% of the vote<\/strong>, opening up several scenarios that investors had previously considered unlikely, including a potential alliance with the left-leaning Economic Freedom Fighters or the newly formed uMkhonto weSizwe party, which includes former president Jacob Zuma.<\/p>\n\n\n\n \u201cOur perception is that the market views a potential coalition with the largest opposition party, the Democratic Alliance, as overall benign albeit fragile,\u201d said Yvette Babb, a portfolio manager at William Blair Investment Management.<\/p>\n\n\n\n South African assets were highly volatile in the first hours of trading on Monday, but ended the day on a more stable footing.<\/p>\n\n\n\n \u201cA formal alliance with the DA would be most supportive and perhaps give rise to a rally in asset prices. However, we believe there may be an enduring rise in the South African risk premium given the increase in implementation risks,\u201d Babb added.<\/p>\n\n\n Despite the setback at the polls, the ANC remains the country\u2019s largest party. <\/p>\n\n\n\n Finance Minister Enoch Godongwana on Monday said the ANC will not make\u00a0reckless decisions<\/strong>\u00a0in selecting a coalition partner, aiming to maintain investor confidence and economic policy continuity.<\/strong><\/p>\n\n\n\n Current coalition talks involve potential alliances with the EFF, the MKP and the DA. The ANC ruled out a demand by the MKP that President Cyril Ramaphosa step down and is considering a minority government or a \u201cconfidence and supply\u201d agreement to maintain stability.<\/p>\n\n\n\n Citigroup expects the ANC to rule as a minority government, creating \u201cparliamentary uncertainty and instability,\u201d economist Gina Schoeman said in a note to clients. A pact with the DA would be welcomed by financial markets, as it could accelerate economic reforms and privatization initiatives, and is seen as a more likely scenario, Schoeman said.<\/p>\n\n\n\n Risks Remain<\/strong> <\/p>\n\n\n\n South Africa\u2019s sovereign-risk premium eased Monday after jumping the most since January by the close of trading Friday. The extra yield that investors demand to own the nation\u2019s dollar debt rather than Treasuries stands at 319 basis points, according to JPMorgan Chase & Co. data. <\/p>\n\n\n\n \u201cThe higher risk premium that would arise as a result of a coalition between the ANC, EFF, or the MK Party is reason alone to not enter such a coalition,\u201d said Schoeman, which sees a 15% probability of this outcome.<\/p>\n\n\n\n For Sebastien Barbe, head of emerging market research at Credit Agricole, the strong performance of the MKP adds to uncertainty for the rand. A coalition with the DA would be more favourable for the currency compared to one with the MKP or EFF, he said.\u00a0<\/p>\n\n\n\n \u201cThe rand at current levels is not particularly stretched, and the carry is decent, so this may limit some possible depreciation pressure that would come from political uncertainty,\u201d said Barbe. <\/p>\n\n\n\n \u201cBut i would say the rand risk is the the downside in the short term.\u201d<\/p>\n\n\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2024\/06\/image-35.png\")
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