South Africa’s markets continue to take a beating, with the JSE’s All Share Index down 9.28% over the past week and the rand continuing to trade above R19 to the dollar, having hit R19.29 by lunchtime on Monday.
Both US President Donald Trump’s wide-ranging tariffs on all imports to that country and concerns over South Africa’s political stability, with suggestions that the DA may leave the new administration, have pushed sentiment lower.
This is a far cry from the optimism after the formation of the Government of National Unity (GNU) around the middle of last year, which was reflected in both currency and market gains locally.
Izak Odendaal, chief investment strategist at Old Mutual Wealth, said the declines in the local markets need to be seen in the context of global market turmoil.
“Investors are cutting risk exposure given the negative impact of these tariffs on economic growth and company margins.”
In addition, Odendaal said that South Africa has the additional problem of domestic political uncertainty with the future of the GNU in question.
Investec chief economist, Annabel Bishop, said “prior forecasts on both global and domestic economic growth are now under threat, which in turn is negative for commodity prices, and so commodity currencies, and has seen the general weakness in commodity currencies this week”.
In addition, said Bishop, “the collapse in commodity prices has also afflicted the rand, as the broad-based, but unequal tariff increases from the US has negatively affected expectations on global and US growth, and, so, global demand for basic materials”.
Andre Cilliers, Currency Strategist at TreasuryONE, noted that the rout in the markets continues as trade war and fears of a recession in the US rise, especially after China's retaliatory 34% tariffs announced on Friday, which escalated the trade war and triggered a massive global sell-off in markets.
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“We could still be in for some short-term weakness, but the local currency is in oversold territory, and we are due a correction,” said Cilliers.
Nolan Wapenaar, co-chief investment officer at Anchor Capital, noted that, loosely, about 60% of the impact on bonds and the rand are from GNU jitters and 40% being from Trump tariffs. “At this stage it is too early to say where either factor will end up and any combination of events is possible,” he said.
Although the impact of Trump’s tariff regime will be limited when it comes to South Africa, there will be an indirect and adverse effect in that his additional tariffs worldwide will cause a global slowdown in economic growth, said Wapenaar.
Trump’s tariff announcement takes duties on local products exported to the US to 30%.
Wapenaar explained that the direct effect on South Africa will be minimal partly “because of our export basket where a number of minerals and resources are not being subject to tariffs and partly because items like food can reasonably be routed to other destinations”.
Old Mutual chief economist, Johann Els, has determined that total exports from South Africa to the US last year in 2024 accounted for 7.7% of all local exports.
The greater impact is that our non-US trading partners are about to experience a slowdown and this will impact on South Africa indirectly, said Wapenaar.
“Additionally, tariffs and the slowdown are clearly going to detract from consumer confidence and will spawn risk aversion in global markets. This will also impact South African assets across the board.”
For South Africa, while it sees tariff lifts on some metals and minerals, it avoids them on others, but faces heavy US protectionism on vehicle, agricultural and other exports, as well as the loss of its free trade benefits with the US under the African Growth and Opportunity Act, said Bishop.
On the recent political disputes between the ANC and the DA that could result in the DA leaving the new administration, Wapenaar said this would “be significantly negative for the outlook of the country”. He noted that the local markets rallied strongly when the GNU was formed and it was the combination of the ANC and the DA that was positive, not one or the other.
Bishop stated that the local currency “has lost substantial ground on the expected exit of South Africa’s second largest political party, the DA, from the coalition government after the DA voted against the recent budget’s VAT increases and lack of lower state spending”. She added that investor sentiment was plunging on building expectations of the DA’s exit from the GNU.
IOL