Dawie Roodt shares good news about South Africa’s markets

Award-winning economist Dawie Roodt said a positive election outcome could bolster the rand and South Africa’s capital and equity markets.

Roodt told Power FM that the JSE is at least 30% undervalued compared to its global peers.

“Global markets had a tremendous run over the last year or two, but South Africa missed out on this bull market,” Roodt said.

That means the JSE could rise by 20% to 30% if the upcoming elections have a good outcome that favours the economy.

South Africa’s capital market is also cheap. “A positive election outcome can bolster the capital market by 200 basis points,” Roodt said.

Another beneficiary of favourable election results is the rand’s exchange rate. Although the rand has strengthened in recent weeks, it is still undervalued.

“The rand has been under tremendous pressure. Although it is always undervalued, it is now more undervalued than previously,” he said.

“A good outcome in the elections can see the rand strengthen to R17.50 or even better against the US dollar.”

These are the immediate impacts on the financial markets should South Africa’s 2024 general elections yield a positive result.

These impacts will spill over into lower inflation, lower interest rates, more investments, and stronger economic growth.

Despite the potential upside to South Africa’s markets, Roodt highlighted that South Africa is currently not a good investment destination.

He highlighted the example of BHP Group’s offer to buy Anglo American, where it insisted Anglo must spin off its South African units before the acquisition.

It showed that BHP did not want anything to do with South Africa, which is widely seen as a business-unfriendly country.

Many investment specialists have also warned that South Africa is not featured in global investment discussions.

The reasons are widely known: weak economic growth, wrong macroeconomic policies, and a government that causes immense damage to the economy.

“These things scare investors away. We need to remove the destructive policies and mismanagement by the government,” Roodt said.

He added that while a good election outcome can bolster South Africa’s financial markets, a bad outcome can cause devastation.

“The rand will weaken, the bond market will suffer, the equity market will plummet, and we will experience higher inflation and interest rates,” he said.

It raises the question of what good and bad general election outcomes look like.

Roodt said a good outcome is where the ANC loses support and forms a coalition government with right-leaning political parties.

The parties to the right of the political spectrum include the DA, FF Plus, Rise Mzanzi, PA, and the IFP.

A bad outcome would be an ANC alliance with parties to the left of the political spectrum, like the EFF and the new MK party.