While South Africa gears up for local elections, across the Atlantic, the US is preparing for its own presidential vote – and if controversial republican leader Donald Trump emerges victorious, South Africa could be in for a tougher time.
South Africa’s exposure to markets such as the USA and the UK is limited (compared to the exposure to Asian markets), but it is not immune to the fallout of big moves in those countries.
For example, the so-called Brexit vote in 2016 had a short-term positive effect on South Africa (with the pound and the euro suffering in the after-effects), however the long-term impact is yet to be determined – likely only in 2017.
In the same way, whoever emerges victorious from the November US presidential elections will have an impact on South Africa.
According to global investment firm, Nomura, the possibility of republican candidate Donald Trump emerging victorious cannot be dismissed – and with no solid position coming from his campaign on important policies, a Trump presidency spells uncertainty for markets linked to the US.
The Eastern Europe, Middle East and African (EEMEA) region has relatively little exposure to US markets, with South Africa and Russia coming in at around 10% of domestic value, Nomura said.
However, banking exposure data showing the amount of US credit in various countries, as a share of GDP for countries in the EEMEA region, is highest in South Africa, at 43% of GDP.
“This reflects the role of US banks in project and trade finance, as well as short-term financing through the balance of payments,” Nomura said.
With no real stance on economic policies coming from the Trump camp, focus moves to his geopolitical views – which he has been very clear on – namely a more “independent”, isolationist US. These views becoming policy could push investors into less riskier markets, Nomura said.
Trump’s policies also point to warmer relations with Russia, which could antagonise other European nations, Nomura noted; while Trumps stance on the Middle East (and support for Israel) could lead to another significant dip in the oil price.
Ultimately, with a lot of uncertainty, a Trump presidency could see South Africa become a negative trade market as investors move to safe-haven markets with minimal (or beneficial) exposure to the USA’s new stance (such as Russia and Hungary), Nomura said.
“A constrained Trump Presidency could see markets still operate normally; however, a more unconstrained one (especially on trade, immigration and foreign policy) might risk (selected) Emerging Markets (excluding South Africa) becoming a safe haven from the US for investors, and so flows may well remain supportive in either case,” the group said.
Source: Business Tech