Markets are beginning to price in the possibility of a Donald Trump election win on November 5, which would have a significant impact on the green shoots emerging in the South African economy.
Analysing the first 100 days of the government of national unity (GNU) for Exporters Western Cape, Ninety One investment director Louis Niemand pointed out that the dollar had been strengthening markedly over the past two weeks, after a period of decline over the previous 50 days. The reason for that, he said, was that “markets across the world have shifted the expectations from a Harris probability of winning to a Trump probability of winning”.
“When you're trying to predict what is happening to the rand, you have to also understand the impact of (a Trump or Kamala Harris win) and what their policies could do to the dollar going forward, because that will have a direct impact on what is going to happen to the rand-dollar exchange rate.”
Niemand said there were several reasons behind this expectation. Firstly, tech billionaire Elon Musk’s support for the Trump campaign is gaining traction; secondly, his statements around tax reform and his rhetoric around immigration are garnering support, particularly in the southern states; and finally, he is building a full campaign around his criticism of how poorly – in his view – the Biden-Harris administration has responded to the devastating hurricanes in Florida.
He outlined two divergent paths for the South African economy based on whether Trump or Harris carries the day.
“(Trump’s) policy is tariffs, cutting taxes and aggressive spending, which should boost economic growth in the short term (in the US). And that could actually create inflation, which will mean interest rates might actually not be cut that much, and higher interest rates would mean a stronger dollar.
“So Trump, even though he says he believes in a weaker dollar, his policies will actually translate into a stronger dollar. And that’s the big trade-off at the moment. If Trump wins, the dollar will strengthen, and the rand will weaken. If Harris wins, the dollar could continue to weaken and the rand could strengthen.”
In his analysis of the performance of the rand and the South African stock market over the past 18 months, he pointed out that the establishment of the GNU had led to a remarkable and sustained strengthening of market performance, particularly among asset classes that relied on market and consumer confidence. Retailer stocks have risen by 42.4%, bank stocks by 35.2%, listed property by 21.4% and even bonds, the most conservative of asset classes, are up 13%. The All Share Index rose by 14.6%.
In the event of a Trump win, Niemand said, all these rallying stocks could weaken in the short term.
“If Harris wins, the dollar could weaken. Therefore, the rand could strengthen and all these ‘GNU stocks’ could rally. So this, in two weeks’ time, is quite a big thing that could have an impact on our markets and what could drive performance on our markets.”
