The Effect of the National Elections on the Economy
Effect of National Elections on SA Economy
The election results were generally expected and the markets reacted
accordingly, with the capital market strengthening by 1.07% and the yield of
the R186 down from 8.54% to 8.45%, which is an indication of trust in the new
The results of the national elections held last week were widely reported in the media and at this stage should be known to all. The economic impact of the elections was overshadowed by international news events, but more about those later. The election results were generally expected and the markets reacted accordingly, with the capital market strengthening by 1.07% and the yield of the R186 down from 8.54% to 8.45%, which is an indication of trust in the new government. The currency subsequently strengthened by 1.31% against the USD and 2.59% against the British pound.
Global equity markets reacted violently after the US and China could not reach a trade deal and President Donald Trump increased levies from 10% to 25% on $200 billion of goods imported from China. In reply, China vowed to take “appropriate countermeasures”. Markets interpreted that as an escalation of the trade tension between the two economic superpowers and sold off. The US S&P 500 lost 2.18% for the week, while the Chinese Shanghai index closed 4.72% in the red. In Europe, the CAC 40 lost 3.99% and the DAX 2.89%. The Nikkei in Japan lost 4.11%.
The local markets were not spared, despite the market-friendly elections outcome. The JSE all-share index closed 4.28% weaker, but recovered after an even worst performance ahead of the election results. The industrial index shed 5.73% in value and the resources sector 4.72%. The best performing sector was the financials, with a loss of only 1.73%.
Globally, the geopolitical environment became more clouded. Tension between the US and Iran intensified the week as the US dispatched an aircraft carrier and a bomber taskforce to the Middle East amid indications of planned attacks on US interests in the region by Iran. The instability stem from an intensified set of sanctions imposed on the oil exporter by the Trump administration.
Equity markets perform best in a stable environment with little political tension. While in the past week the political temperature globally heightened, South Africa’s most crucial political event passed relatively uneventful. This could give local market an edge on global markets in the short term.
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