South Africa: economic uncertainty remains despite Cyril Ramaphosa’s ANC election

While Cyril Ramaphosa’s election at the helm of the African National Congress (ANC) is potentially an important turning point for South Africa, a considerable uncertainty remains, an expert said early this week.

Firstly, because Cyril Ramaphosa will not be the country’s president until Jacob Zuma steps down or until the next general election in 2019, his immediate ability to influence policy is uncertain, John Orford, portfolio manager at Old Mutual Investment Group, said.

Secondly, Orford added, regardless of the election outcome South Africa’s sovereign credit ratings could still be downgraded by Moody’s.  “If this happens, it could trigger an outflow of capital from South Africa’s bond market, putting pressure on the rand and bond yields,” he explained.

The South African currency seems to have majestically recovered since Ramaphosa’s victory election, trading currently around R12 to the US dollar on Friday morning.

“We expect markets to react positively to Ramaphosa’s election as ANC president. As such, we would likely see a stronger rand, a stronger domestic bond market and relatively positive returns from SA Inc. stocks,” Tinyiko Ngwenya, an economist at Old Mutual Investment Group, said, adding that a sustainably strong rand strength could lead to lower inflation and pave the way for interest rate cuts.

But Orford seemed unfazed and urged investors to remain cautious and prudent.

“We suggest that investors stay calm and invested in the long term and know that they are invested with a company that has robust well-diversified portfolios that can weather the volatility likely to surround any potential downgrade and the February budget,” he said.

“Our portfolios have delivered good real returns over many years and through many investment cycles. We expect them to continue doing so in the future,” Orford pointed out.

Photo: Newly elected ANC president Cyril Ramaphosa: credit: EWN

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