South African Election Early Results Show ANC Losing Majority, DA and MK Gaining Ground

In an unprecedented turn of events, early results from South Africa’s recent election suggest that the African National Congress (ANC) may lose the parliamentary majority it has held for three decades. This historic shift implies that the ANC might need to form a coalition to stay in power, introducing potential political instability in the weeks and months ahead.

With data from 20.4% of polling stations, the ANC’s vote share stands at 43.4%, trailing its historical dominance. The pro-business Democratic Alliance (DA) is at 24.9%, while the newly formed Marxist Economic Freedom Fighters (EFF) and uMkhonto we Sizwe (MK), led by former president Jacob Zuma, hold 8.8% and 8.1%, respectively.

Andrew Bahlmann, a senior executive at M&A advisory firm Deal Leaders International, remarked, “The ANC might need to consider forming an alliance with one of its major rivals to maintain its hold on power. The key area of uncertainty is the make-up of a future coalition.”

Since the end of apartheid in 1994 and Nelson Mandela’s ascent to the presidency, the ANC has dominated South Africa’s political landscape. However, widespread dissatisfaction due to high unemployment, poverty, crime, power blackouts, and corruption has eroded its support.

Initial results, which favor rural areas where the ANC is stronger, suggest a potentially more dramatic shift once urban votes are counted. Predictions from pollsters and major broadcasters indicate that the ANC, which secured 57.5% of the vote in 2019, will likely lose its majority.

Under South Africa’s proportional voting system, the number of seats in the National Assembly corresponds to each party’s share of the vote. Despite potentially losing its majority, the ANC is expected to remain the largest party, positioning its leader, Cyril Ramaphosa, to likely continue as president. However, a weaker performance could expose Ramaphosa to internal leadership challenges.

Market Implications and Investment Opportunities:

The election results bring both challenges and opportunities for investors. Market reactions could be volatile, but strategic investment decisions can capitalize on these shifts.

Short-Term Market Reactions: A coalition government might lead to political gridlock and policy uncertainty, unsettling markets. The immediate reaction saw the rand depreciate by over 1% against the U.S. dollar, and the broader equity index dropped by more than 2%. International bonds also fell, reflecting investor concerns about potential instability.

Long-Term Opportunities: Depending on the coalition’s composition, different sectors could experience varied impacts. A coalition with the DA might be favorable for market stability and investment, given the DA’s pro-business stance. Conversely, alliances with populist parties like the EFF or MK could introduce policies less favorable to investors, such as nationalization of mines and banks.

Strategic Diversification: Investors should consider diversifying their portfolios to mitigate risks. Sectors less influenced by domestic political changes, such as technology and renewable energy, could offer stable returns. Additionally, emerging markets and international investments might provide a hedge against South African market volatility.