SA Elections and Investing – here’s what you need to know…

The date of SA’s most important election since 1994 is coming up fast! We’re just around one and half months away. Of course, nobody knows what the outcome will be… However, the result could make or break SA Inc.

Today, I’m going to share my view on I what I think could happen in the elections and how investors can position their portfolios in case of the worst outcome…

The best and worst possible election outcome

I have seen many polls from various organisations on the potential outcome of the election. And they do provide some insight into how the elections could turn out.

Here’s the gist of it…

The ANC will lose a lot of votes most likely to EFF and MK.

It will remain as the dominant government party, which means it will need to form a coalition to make any kind of decision in parliament.

In my view, the best possible outcome for SA is a coalition with the DA. The DA is far from perfect, but they at least have a decent track-record of good governance and welcoming foreign investor capital.

The problem is, will they be able to exert influence over the ANC when it comes to important political and economic decisions for SA?

Unfortunately, my guess is no. We’ve seen this in the past. Hopefully, the ANC losing votes might kick them into gear to work with the DA. But again, I reiterate we can only hope.

The worst possible outcome for SA is an EFF/MK coalition. In my view, it will create even more uncertainty on the economic policies of SA. And if there’s one thing investors don’t like, it’s uncertainty.

Uncertainty scares investor capital off impacting stock and bond markets. And that will result in a weaker rand and ultimately hurt foreign investment into the country.

That’s a situation SA cannot afford. After all, foreign investors have already withdrawn R1 trillion from SA’s bond and equity markets over the past 10-and-a-half years. This could only worsen if an EFF/MK coalition forms particularly because of policies such as nationalising the Reserve Bank and property expropriation without compensation.

What moves can you make now to protect your portfolio whatever the election outcome?

Firstly, own foreign currencies – Euros, Dollars, Pounds. You can directly exchange rands for foreign currencies at your bank. Alternatively, you can invest in Absa’s NewWave currency exchange-traded notes (ETNs). There are three: NEWUSD, NEWEUR and NEWGBP. Simply, these ETNs will appreciate if the ZAR weakens relative to the respective foreign currencies.

Secondly, I’m a big believer of holding hard assets. Gold especially has been able to maintain its value through decades of currency devaluations. And investors also benefit from holding gold when the rand weakens.

For instance, an ounce of gold in USD has returned around 85% over the past five years. Meanwhile, an ounce of gold in ZAR has returned 150% over the same period!

When it comes to JSE-listed stocks, I do not advocate selling off. The fact is, many JSE companies – big and small – earn offshore revenues today. So, any rand weakening is an immediate boost.

In addition, owning offshore businesses also insulates companies from the deteriorating local infrastructure, loadshedding, and declining consumer confidence.

These are the types of businesses investors should hold. The reality is individual stocks performance aren’t reliant on the JSE Index moving higher.

Of course, it helps. But you can make money just by owning quality stocks that are undervalued and growing. And there are several JSE companies that fit this description. All you need to do is read our Red Hot Penny Shares and Real Wealth monthly publications to find out who they are!