South African financial market surprise

South Africa’s economy is much stronger than a year ago, so it is not reacting as anticipated to the attack by United States President Donald Trump.

Over the last few weeks, Trump and his allies have criticised South Africa’s Expropriation Act, black empowerment rules, and race-based policies.

Trump signed an executive order formalising his earlier announcement that he would freeze assistance to South Africa.

There are also risks of South Africa losing its African Growth and Opportunity Act (AGOA) benefits, which can hurt exports to the United States.

South Africa could even face tariffs and sanctions from the United States, which can have devastating consequences for the economy.

Despite these threats, the rand has not reacted negatively to the news, and South Africa’s equity markets have reached an all-time high.

It raises the question of why South African markets have shrugged off these threats from the United States, which is the inverse of what most people expected.

Rand Merchant Bank chief economist Isaah Mhlanga said South Africa’s fundamentals are much stronger than a year ago.

He added that much of the news coming out of the United States, especially about Trump, is political and lacks economic foundations.

“The approach from Trump is not something which people can say will certainly happen,” Mhlanga told The Money Show.

“It appears that many of Trump’s comments are a negotiating tactic, and the market is starting to price that in.”

He added that the high frequency of comments from Trump means that many stakeholders stopped reacting to it.

“The best thing to do is to sit back and watch how Trump’s announcements are implemented,” he said.

Mhlanga added that many lawmakers in the United States are pushing back against Trump’s orders, which can influence the outcome.

This means that the market is reacting to what is being implemented rather than what Trump says or writes.

The rand has been surprisingly stable amidst the international turmoil, which Mhlanga attributes to the resilience of the South African economy.

“South Africa is talking about reforms, load-shedding has been reigned in, and logistics are improving,” he explained.

These positive developments give the market confidence in the local economy and the companies operating in South Africa.

“This confidence changes the view of local and international investors who now see South Africa more positively than other emerging markets,” he said.

The high gold price is another factor helping the local economy. As a gold-producing country, South Africa benefits.

Dawie Roodt shares his view

Efficient Group chief economist Dawie Roodt said it was difficult to explain why the market behaved as it did after Trump’s executive order and the recent developments.

The only explanation he could see was that the market expects South Africa to reach an agreement with the Trump administration.

He said in North America, Trump imposed tariffs and levies on Canada and Mexico, which caused a stir in these countries.

“In all these cases, Donald Trump won the war,” he said, referring to these countries giving in to the US President’s demand.

A similar situation may unfold in South Africa, where the market expects South Africa to agree to most of Trump’s demands.

Roodt said the only explanation he could see for South Africa’s strange market reaction is that investors do not expect a trade war with the United States.

“The South African markets are expecting the South African government to bend the knee before Donald Trump,” he said.

“The only reason I could see is that the market expects the fight between South Africa and the United States to go Donald Trump’s way.”