By Chris Green
UNDOUBTEDLY USA politics has an impact on the global economy and markets, but what does this mean for South Africans? Will the strong Republican win trigger a weakening in the Rand? Will interest rates hike? Will trade agreements between South Africa and the US suffer? Will investment companies notice an increased or decreased international interest in South Africa? A look at historical USA voting trends and the resulting impact on the South African economy may help us predict what’s to come and whether the election of Donald Trump as President of the United States of America will negatively impact our country, as is feared.
Looking at historical data for the last 20 years, it is evident that the US elections do impact the value of the South African Rand, however, other factors play a part in the extremity of the trend observed. There is a noticeable spike in the Rand/ Dollar exchange value in the month of November after US elections in the election year, and usually in December or January following, the Rand per US Dollar will dip below that what it was before the election. Speculating on possible reasons lead us to believe that the hype and stress about the change in leadership in the country causes investors to sell their shares, and the market stress pushes up the cost in Rand per Dollar periodically.
It is, however, obvious when looking at the historical data that the current political climate in South Africa and other economic factors play a role in the general reaction to the US Election observed. For instance, in 1996, contrary to the years after and prior, there was a very small spike of only one cent on the day, and in the days that followed, a small drop in the Rand/USD exchange of a mere two cents. In the months that followed, the Rand/USD exchange rate spiked and dipped again to R4.55/USD.
In the election years that followed 1996, a growing trend was observed where the value of the Rand dropped on the day of the US election and in the days that followed it, but picked up again by January of the next year.
This year, the US election results caused a viral epidemic across the internet with much fear and speculation around whether Trump will act on his many threats against minority groups and countries. The trend so far for the Rand seems as negative as can be expected in view of historical Rand/USD exchange rate statistics. The Rand was slowly strengthening during the month of November, however on the day of the election an immediate spike in the Rand/ USD exchange could be observed.
If we keep in mind the historical trends, the USA elections might actually have a positive impact on the Rand/ USD exchange by mid-January 2017. Investors should look out for investment opportunities at the start of 2017 to take advantage of the appreciation of the Rand that, according to the historical data, is probable.
Investment companies like Coronation Fund Managers and Nedbank can help investors looking to invest, whether short term to take advantage of a coming drop in the Rand/USD exchange or long term, with weighing their options and considering the myriad other influencers in the market. Investments could possibly be in other foreign markets unaffected by US-SA relations to avoid the roller-coaster predicted in the next few months.
The question of how US-SA trade relations will be impacted remains up in the air. Trump was believed to be the most unpredictable candidate in the election when it comes to US-SA trade agreements and import and export relationships, with many fearing that Trump’s eagerness to amend trade agreements to unquestionably favour the US may be to South Africa’s detriment. The Agoa Trade Agreement in particular needs to be watched carefully. Unfortunately, Trump does not seem to be as favourable to Free Trade as Obama was, and it remains to be seen whether Donald Trump as President of the United States will bolster or devastate the South African economy.
Confidente. Lifting the Lid. Copyright © 2015