The South African rand. Picture: REUTERS
The South African rand. Picture: REUTERS

It has been a common refrain from analysts and some business leaders that we should not expect much to happen in SA until general elections on May 8 — not from the government nor from the investment community.

It is almost as if having a democratic system is a curse rather than a blessing. Very few people have articulated what it is that could happen on May 8 that would make SA’s prospects much worse, or better even, than they are now.

Most surveys indicate that the political landscape will look similar to what it does now, with the ANC set to win about 60% of the vote, which would be two percentage points lower compared with its performance in 2014.

With such widely divergent outcomes in the offing, sometimes it is good to see what people with skin in the game, so to speak, are betting on. If the currency market was going to be any guide, the message would seem to be keep calm and carry on.

There is a view that Cyril Ramaphosa leading the ruling party, which steadily lost support during the disastrous and corruption-plagued reign of Jacob Zuma, into an improved showing in May will strengthen his hand and enable him to deliver pro-growth policies.

That is seen as crucial to the country maintaining its investment grade rating from Moody’s Investors Service, which some feel it was fortunate not to lose in March. A stronger Ramaphosa, according to this narrative, will also be in a much stronger position to act against the rogues in the ruling party. 

This could cause some of the revelations of wrongdoing from the various commissions of inquiry finally to translate into prosecutions and jailing of culprits. The last point is a bit dubious, to say the least.

The National Prosecution Authority is not supposed to be guided by politics, irrespective of what happened during the Zuma era. The decision to prosecute should be Shamila Batohi’s alone, and the elections should have no bearing on it.

There is also a gloomier view that sees the ANC possibly doing so badly that Ramaphosa’s position is seriously threatened and his known enemies and Zuma allies, led by ANC secretary-general Ace Magashule, attempt to force him out of office. There is also the EFF factor, which could force an ANC that is just short or has a small majority to depend on the firebrands’ vote.

That would mean the ANC being pushed so far to the left that destructive policy on everything from land reform to the independence of the Reserve Bank ensues. That would be a disaster. A credit downgrade would definitely follow, and outflows from the country’s bond markets would cause the rand to crash and bond yields to surge.

With such widely divergent outcomes in the offing, sometimes it is good to see what people with skin in the game, so to speak, are betting on.

If the currency market was going to be any guide, the message would seem to be keep calm and carry on. Since slumping to its weakest level of the year on March 28, the rand has gained 5.4% against the dollar and on Wednesday slipped below R14/$ for the first time since late February.

At 16.05%, implied swings on the rand against the dollar for the next month, a period that covers the election period, seem high at face value. But it is not extraordinary for the rand, one of the most liquid emerging-market currencies, to be towards the top of the volatility chart, often driven by turmoil in peer markets such as Turkey and Brazil.

One-month implied volatility is actually about four percentage points lower than it was in October.

In terms of direction, traders are not looking that nervous either. In fact they are more bullish than they were in February, although they still expect the rand to weaken against its US counterpart.

The difference in price between options that give the right to insure against losses in the rand versus those that give the buyer the right to buy it, narrowed to 2.21 percentage points on April 5, down from a 2019 high of 3.37 percentage points on February 7.

So if you were looking at currency markets to work out how nervous you should be, the message would seem to be, not very much.