South Africa’s upcoming national election, scheduled for 29 May 2024, has stirred considerable apprehension among investors and citizens alike. Amidst the uncertainties surrounding the election, Allan Gray, a prominent investment firm, offers a reassuring perspective on the market’s resilience during periods of political volatility.
Described as the most significant election since the advent of democracy in 1994, various polls anticipate the African National Congress (ANC) to potentially lose its parliamentary majority. The prospect of the ANC relinquishing control over key provinces such as Gauteng and Kwa-Zulu Natal further amplifies the uncertainties shrouding this electoral event.
In response to the prevailing anxieties, Marise Bester from Allan Gray suggests that reflecting on historical market performances during times of ambiguity can offer valuable insights. While past performance is not a foolproof predictor of future outcomes, it serves as a guiding beacon amid turbulent times, aiding individuals in maintaining a broader perspective.
Bester points out that since 1994, the FTSE/JSE All Share Index (ALSI) has encountered downturns on an annual basis. However, she emphasizes that markets are inherently cyclical, with short-term volatility being an integral aspect of attaining real returns. Interestingly, despite this cyclicality, a majority of the past 30 years have witnessed positive market performance. Notably, none of the years with negative returns coincided with election years, highlighting a potential decoupling between electoral events and market fluctuations.
Drawing on insights from renowned author Morgan Housel, Bester underscores the importance of acknowledging and preparing for latent economic risks. She contends that market sentiment can be transiently influenced by an array of external factors, including macroeconomic dynamics and political uncertainties. Thus, while the outcome of the 2024 election could potentially catalyze policy shifts with varied implications for companies, history suggests that the market’s long-term trajectory is primarily shaped by broader economic fundamentals and corporate performance.
Despite the likelihood of short-term market fluctuations surrounding the election, Bester asserts that investors who maintain a steadfast focus on long-term horizons tend to reap substantial rewards. However, she cautions that such a strategy is not devoid of risks, acknowledging the possibility of enduring prolonged periods of uncertainty and reform before witnessing eventual recovery.
As Bester poignantly notes, “It is often darkest before dawn,” underscoring the resilience of the market amidst adversities and the potential for brighter prospects on the horizon. In essence, while the 2024 elections may evoke temporary apprehensions, history admonishes against succumbing to short-term anxieties and emphasizes the enduring value of a long-term investment perspective.
Allan Gray’s insights offer a beacon of hope amid the prevailing uncertainties, reminding investors of the market’s inherent resilience and the rewards that await those who steadfastly navigate through turbulent waters. As South Africa braces for a pivotal electoral moment, Allan Gray’s message serves as a timely reminder to keep faith in the enduring resilience of the nation’s economy and markets.
