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The rand strengthened to R18.38 against the US dollar on Friday’s market close. The Johannesburg Stock Exchange (JSE)’s All Share Index also ended higher, driven by a rally in banks and retail stocks.
Market analysts say the nervousness in the markets appears to be easing as the swearing-in of Members of Parliament has gone smoothly and there is better clarity on coalition deals.
Market analyst Patrick Mathidi says a coalition government is a first for the country since the transition to democracy in 1994 and shifts will continue to influence the performance of the markets.
Following the loss of its Parliamentary majority in the May elections, the African National Congress (ANC) consented to form a Government of National Unity (GNU) with the Democratic Alliance (DA), Inkatha Freedom Party (IFP), and Patriotic Alliance (PA).
Mathidi says this change in South Africa’s political sphere poses a slight risk.
“We still have a lot of detail in the form of what is actually the government of national unity and the terms and conditions. The first is that we have a national Speaker (Thoko Didiza). The swearing-in has gone very well and that has taken off the risk,” explains Mathidi.
“Certainly, this is the beginning, even the agreement that has been announced of the parties that are in agreement have given each other six weeks to come back with finer detail,” adds Mathidi.
While the terms and conditions of the deals are still not clear, Mathidi says the next six week will be critical as parties will be meeting to iron out the finer details of the government of national unity.
“The last thing the markets want is a repeat [of] what we see happening in provincials and local government where the backlogs and have resulting in collapsed from the coalition.”
He says the stronger rand is a sign of confidence that the markets are accepting the outcome of the government of national unity.
Impact of the GNU on the South African markets
