Whether currencies will stabilise remains to be seen but SA’s motor vehicle exports may be in the firing line
DONALD Trump’s presidential victory surprised markets around the world, which saw huge sell-offs and weakening currencies. Emerging markets were not spared, with the rand tumbling 4% to R13.83 at one point yesterday and the JSE’s financial index taking a knock of 1.24%.
By 3pm, the local currency steadied to R13.41/$ but took a knock again around 5pm to trade at R13.54/$ while financial and industrial indices were also still in negative territory.
Some observers said it would be short lived but fears were raised that South Africa and Africa as a whole, could suffer some trade disruptions as Trump campaigned on an America first protectionist policy that may put the Africa-friendly African Growth and Opportunity Act (Agoa) trade agreement in jeopardy.
South Africa exports R70bn worth of products to the US a year. Agoa accords duty-free treatment to virtually all products exported by beneficiary sub-Saharan countries to the US.
The rand opened trading weaker at R13.67/$ yesterday on the news that Republican Trump had edged ahead of Democrat Hillary Clinton. Some emerging market currencies fell on their faces but fears of Brexit-style panic failed to materialise.
“What will a Trump presidency mean for sub-Saharan markets? Near term, the rand is likely to be affected,” Razia Khan, chief economist of Standard Chartered Bank said.
Colen Garrow, Meganomics economist, said: “At risk will be the motor vehicle industry and exports to the US, the second largest destination for such exports.”
Stanlib chief economist Kevin Lings said that implications for South Africa were somewhat negative, especially given the fact that any change in policy change can ultimately undermine South Africa’s ability to export to the US. “The Trump presidency could also lead to a review of the Agoa Act,” he said.
Debt Rescue CEO Neil Roets said there may be “very negative consequences” for deeply-indebted South African consumers. “We can only guess at the ripple effect his election is going to bring to the world economy but none of it is going to help deeply-indebted consumers in South Africa to catch a breather,” he said.
Iraj Abedian, chief economist of Pan African Capital, said although the outcome caught markets by surprise, some currencies in the emerging markets will strengthen and we can expect a different assessment in the markets next week.
NWU School of Business and Governance Prof Raymond Parsons said the latest developments in US politics emphasises again why South Africa must do what is necessary to get its house in order and avert a credit rating downgrade at the end of the year.
“A bigger, stronger and better economy is what South Africa must now secure. It is however likely that the specific trade preferences which South Africa enjoys in the US market under Agoa will remain intact until their sunset date in 2025, as they are enshrined in legislation. Trump foreign policy towards countries like China or Russia, with whom South Africa has important economic commitments through the Brics blog might have some impact,” Parsons said.
Peter Montalto, emerging markets economist at Nomura, said eastern Europe, the Middle East and Africa is likely to be a lower beta off Mexico and more US-exposed Asian markets, though the reaction so far has been surprisingly limited, especially compared with the post-Brexit reactions.