US Election 2024: Potential Effects of a Harris Win on South African Financial Markets

Key takeaways:

1. Stronger Rand: A Harris victory could lead to a stronger rand due to predictable trade policies, benefiting import-reliant industries with cheaper import costs but posing challenges for exporters as goods become pricier in foreign markets.
2. Enhanced Export Opportunities: Improved trade relations under Harris might boost South African exports, especially in the consumer goods sector, by expanding access to US markets and increasing bilateral trade volumes.
3. Boost in Clean Energy Demand: Harris's emphasis on clean energy could increase demand for metals like platinum, benefiting South African producers, while potentially reducing coal exports due to stricter environmental policies.
4. Increased US FDI: Greater US foreign direct investment in South Africa could lead to job creation, technology transfer, and improved productivity, particularly benefiting the industrial sector.
5. JSE and Interest Rates Impact: The Johannesburg Stock Exchange (JSE) could see growth, especially in clean energy and technology sectors, and Harris's fiscal policies might lower global interest rates, allowing South Africa to reduce its rates, stimulating economic activity but possibly narrowing the interest rate differential.

US Election 2024: How a Harris Victory Could Shape South African Financial Markets

Kamala Harris Victory

1. Currency Fluctuations

• Likely result: Moderate strengthening of the rand
• Rationale: Harris may pursue more predictable trade and foreign policies, potentially reducing global economic uncertainty and supporting emerging market currencies.

For South African businesses and investors, a stronger rand could mean:

• Cheaper imports, benefiting industries reliant on foreign inputs
• Potentially lower inflation due to reduced import costs
• Challenges for exporters as their goods become relatively more expensive in foreign markets

A stronger rand could negatively affect:

• local mining and resource counters by reducing the value of exports in local currency terms.
• Export oriented manufacturers such as Aspen, Nampak, KAP Industrial, Metair Investments and Sappi may be companies which would find reduced competitiveness in the global market place.
• Tourism and hospitality becomes more expensive for foreign tourists.

A stronger rand might affect the following sectors in a positive manner:

• Import orientated retailers of electronics, apparel and furniture such as Shoprite, Foschini, Mr Price and Woolworths
• Financial services such as banks may benefit from increased stability, but those with significant foreign operations might see reduced profits (which is currently less prevalent amongst the major commercial banks) when converting foreign earnings.

Of course the level at which the rand strengthens (should it) would vary the impact on earnings from these companies, and there are a number of other catalysts in play that will influence the path of monetary policy and in turn the direction of the rand in coming months.

The below table looks at locally listed retailers recent closing prices, analyst recommendations and price targets as well as their total return year to date as of the 16^th of October 2024.

While the sector has benefitted from a stronger ZAR and improved economic outlook following the local elections, prices have become elevated and are mostly trading ahead of a longer term fair value assumption. In this regard perhaps the risk to the sector would be from rand weakening and failure for a positive outcome from the US elections for the Democrats.

2. Trade Relations

• Likely result: Improved trade stability, possible expansion of trade agreements
• Rationale: Harris might seek to strengthen international alliances and trade partnerships, potentially benefiting South African exports.

Potential outcomes include:

• Easier access to US markets for South African goods
• Increased bilateral trade volumes
• Opportunities for South African businesses to expand their global footprint

Companies in the consumer goods sector could benefit from improved trade relations, potentially gaining easier access to the lucrative US market for South African wines and spirits.

3. Investor Sentiment

Likely result: Increased investment in South African markets

Rationale: A Harris administration might be seen as more favourable to globalization and emerging markets, potentially increasing risk appetite among international investors.

Benefits might include:

• Increased capital inflows into South African stocks and bonds
• Lower borrowing costs for South African companies and the government
• Enhanced liquidity in local financial markets

Improved investor sentiment could boost the financial sector, potentially benefiting major banks like FirstRand or Standard Bank Group as increased foreign investment flows into the country.

The following table looks at a mean of long term analyst ratings and price targets as well as year to date returns for major South African banks as of the 16^th of October 2024

4. Commodity Prices

Likely result: Mixed impact, potential boost for certain commodities

Rationale: Harris's emphasis on clean energy could boost demand for metals used in renewable technologies (e.g., platinum for fuel cells), but might negatively impact coal exports.

We might see:

• Boosted demand for metals used in renewable technologies (e.g., platinum for fuel cells)
• Potential pressure on traditional energy commodities like coal
• Opportunities for South Africa to position itself as a key supplier in the green energy supply chain

More definitive or certainty around trade policy between the US and China is another factor that will influence commodity prices through demand expectations. A Kamala Harris win is expected to see less protectionism and provide some support to trade relations with China the world’s largest consumer of a number of South Africa’s key exports.

The following table looks at a mean of long term analyst ratings and price targets as well as year to date returns for local mining and resource counters as of the 16^th of October 2024

5. Foreign Direct Investment (FDI)

Likely result: Potential increase in US investment in South Africa

Rationale: Harris might encourage US companies to invest in emerging markets as part of a global economic strategy. Positive outcomes could include:

• Job creation in sectors attracting US investment
• Technology transfer and skill development
• Increased productivity and competitiveness in the South African economy

JSE Example: The industrial sector could benefit from increased FDI. Companies like Bidvest Group or Barloworld, with their diverse industrial portfolios, might see growth opportunities from increased US investment in South African infrastructure and logistics.

6. Stock Market Performance

Likely result: Possible uplift for the Johannesburg Stock Exchange (JSE)

Rationale: Increased global economic stability and investor confidence could positively impact the JSE, particularly sectors aligned with Harris's policies (e.g., clean energy, technology). Investors might observe:

• Overall uplift in JSE performance
• Outperformance of sectors aligned with Harris's policy priorities
• Increased foreign participation in the South African equity market

Technology companies like Naspers and Prosus might see increased investor interest, aligning with Harris's likely emphasis on digital innovation and connectivity.

7. Interest Rates

Likely result: Potential for lower interest rates

Rationale: If Harris pursues expansionary fiscal policies, it could lead to lower US interest rates, potentially allowing South Africa more room for accommodative monetary policy. Potential implications include:

• Lower borrowing costs for businesses and consumers
• Increased economic activity due to cheaper credit
• Potential challenges in attracting foreign capital if the interest rate differential narrows

JSE Example: Real estate investment trusts like Growthpoint Properties or Redefine Properties could benefit from lower interest rates, as cheaper borrowing costs could boost property valuations and development activities.

In conclusion

The total impact of US elections on local markets are hard to define, especially in terms of the degree of influence they might have while there are a plethora of other catalysts in play for the market place right now.

However, a Kamala Harris victory in the 2024 US presidential election could positively influence South African financial markets through several means. Her predictable trade policies may strengthen the rand, benefiting import-reliant industries but challenging exporters. Improved trade relations might enhance South African export opportunities, particularly in consumer goods. Harris's focus on clean energy could boost demand for metals like platinum while pressuring coal exports. Increased US foreign direct investment (FDI) in South Africa could lead to job creation, technology transfer, and enhanced productivity, particularly impacting the industrial sector. The Johannesburg Stock Exchange (JSE) may see an uplift, especially in sectors aligned with Harris's policies, such as clean energy and technology. Lower global interest rates due to Harris's fiscal policies might allow for reduced South African interest rates, stimulating economic activity but potentially narrowing the interest rate differential.