Nicola Mawson and Edward West
The JSE and Wall Street's main indexes were up yesterday afternoon as technology and chips stocks gained in the US and after investors on both sides of the Atlantic braced for volatile trading over the next few days as voting began in the tightly contested Presidential election in that country.
Global rating agency Fitch Ratings said, for instance, that its own weaker economic growth forecasts for South Africa may be overstated, depending on the outcome of the US election.
Describing South Africa’s plans to cut government debt and its economic growth targets as contained in last week’s Medium-Term Budget Policy Statement (MTBPS) as “optimistic,” it said that South Africa’s economic growth figures could change swiftly, depending on the outcome of the polls yesterday, with candidates neck and neck in terms of votes.
Fitch has forecast gross domestic product (GDP) to grow at only 0.9% this year, which is lower than National Treasury’s prediction of 1.1% that it made in the MTBPS.
This was a forecast that was already down from the 1.3% that the National Treasury anticipated in February.
FNB senior economist Koketso Mano said the rand to dollar exchange rate was still strengthening and would likely continue to do so as a result of China's stimulus efforts to promote South Africa’s trade terms, industrial and precious metal prices, and other factors. The rand was firmer by 0.52% to R17.42 late yesterday afternoon. The JSE A;ll Share Index was up 0.49%.
However, with the US election, “the outcome remains a key risk on the performance of the rand.” US opinion polls in the election campaign's final days, according to a Reuters report, showed the contest between Republican Donald Trump and Democrat Kamala Harris was “too close to call.”
“If the election results are unexpected or controversial, the rand could experience significant volatility. The rand is still trading at a reasonable anticipated value of R17.50, which is favourable for both imported inflation and South Africa's overall input bill,” Mano said.
Anchor Capital portfolio manager Peter Little said expecting a conclusive outcome to the election before the weekend was unrealistic, unless the polls were very wrong, and it was a landslide victory either way. While many states should have conclusive results published by this morning, a complete picture from some key swing states would only be known at the weekend, he said.
Old Mutual chief economist Johann Els told Business Report that Trump's policies “wouldn't be good for my base case economic scenario”.
The local currency had by yesterday morning gained 0.8% since last Friday, which Els said would help drive down inflation, aiding further interest rate cuts.
Independent Securities portfolio manager Joe Klopper said either candidate winning could have an impact on South Africa’s economy. He explained that Trump’s proposed tariffs on China – with expectations of a more than 50% increase – could dampen demand for commodities from the communist country, hampering economic growth.
At the same time, Klopper said, Democrat candidate Kamala Harris’ push to greener energy could also reduce demand for platinum. He said, however, such a move could result in lower oil prices, which would ultimately be beneficial for the local economy.
“South Africa's increasing role as an investment destination in Africa means that US monetary policy will significantly influence its growth trajectory, making this election a key event for global markets and investment portfolios,” he said.
Investec economist Annabel Bishop has warned that the African Growth and Opportunity Act could be at risk if Trump implements trade protectionism measures, as all imports are expected to attract a 10% tariff, which would weaken economic growth.
“His onshoring policy could be expected to negatively impact global growth, excluding the US,” she said.
Fitch said that should the National Treasury meet its debt payment targets, this could be positive for South Africa’s rating.
Moreover, “if we become more confident that South Africa’s medium-term growth outlook will improve sufficiently to reduce challenges associated with fiscal consolidation, this could also be positive for the rating”. The country is listed as “junk” by three major global ratings agencies, which means it is not seen as a good investment destination.
Little said that from an investment perspective, they were also focussed on the outcome of congressional elections. The US president can only make tax and legislative changes with the support of both houses of Congress. “Given how close the congressional race is likely to be, it is also unlikely that we will have a conclusive result before the weekend,” said Little.