The presidential election in Argentina and the general election in the Netherlands this week both delivered unexpected results that caution investors to expect a volatile ride next year.
In Argentina, libertarian candidate, Javier Milei, caused a major upset by securing 56% of the vote to win his country’s presidency. He rode into power on a wave of public disillusionment and anger with the poor economic growth and hyper-inflation that Argentina has experienced under its current Peronist government.
Milei, known as El Loco (the madman), campaigned brandishing a chainsaw to symbolise his determination to slash government spending. In addition to his commitment to dramatically downsize the government, his radical election pledges included embracing the US dollar, ditching the peso, and disbanding the central bank.
Argentina’s Merval index soared 20% on Tuesday, with markets welcoming a more pro-business leader and anticipating a bonanza from privatisation of state assets. But most experts in Argentinian politics expect Milei to struggle to enact his more drastic policies because his party is a minority in the Congress.
Over in the Netherlands, a country famed for its stable and even boring political landscape, far-right populist, Geert Wilders, looks set to establish his Freedom Party (PVV) as the largest party in Parliament. His party has traditionally been on the fringe in Dutch politics, but in the most recent election his anti-immigrant and euro-sceptic message seems to have resonated.
By contrast with the market reaction to Milei’s election, the Euronext index and the euro were largely unfazed by Wilders’ triumph in the election. This reflects the reality that he may struggle to assemble a governing coalition without tempering some of his ideas. Indeed, Wilders has already dialled back much of his anti-Islamic and anti-European Union rhetoric.
With The Economist billing 2024 as “the biggest election year in history”, as countries representing over four billion people sending their citizens to the polls, both of these unforeseen results are timely reminders that we could see many surprises in next year’s polls, which include general elections in Indonesia, India, Mexico, Russia, UK, South Africa and many more countries. The blockbuster event is, of course, the US presidential election, which may see Donald Trump return to power.
The Economist has also warned that a Trump victory is the biggest danger the world faces next year. It is possible that a second Trump presidency could usher in an era of America-first protectionism that would be negative for the world economy. America’s loss of moral authority and isolationism under Trump could also embolden China and Russia to be more aggressive on the world stage.
However, as much momentum as Trump has on his side right now, that could change by November next year. Noisy and fractious elections are the sound of democracy working, but the unpredictability is sure to unnerve the markets. History shows, however, that this uncertainty effect is usually short-lived and that equities tend to rally in the year following a successful and peaceful US election.
“The problem with a rapidly changing world is that not everyone will be a winner. Some people will lose relative social and economic status. The causes for these shifts are complex, but in a complex world, people crave simple solutions. This then encourages scapegoat economics and prejudice politics—blaming a minority group for the economic change.”
– Paul Donovan, Chief Economist, UBS
Global News
- With 99% of the vote counted in the Argentinian elections, Javier Milei, a volatile far-right libertarian who has vowed to “exterminate” inflation and take a chainsaw to the state, has been elected president of Argentina with 55.69%. His rival, the centre-left finance minister Sergio Massa, won 44.3% of the vote.
- Anti-Islam populist Geert Wilders won a huge victory in the Dutch elections, according to a near complete count of the vote early Thursday. This is a lurch to the far right for a nation once famed as a beacon of tolerance. The win puts Wilders in line to lead talks to form the next governing coalition and possibly become the first far-right prime minister of the Netherlands.
- Financial markets showed little reaction to a cease fire agreement in the war between Israel and Hamas, which commenced today. The Israeli shekel has recovered all its heavy losses from the first three weeks of the conflict. The war-risk premium for assets such as gold and oil has evaporated this month, largely because traders are optimistic that the conflict will be mostly contained to Gaza and that Hezbollah, an Iran-backed militia based in Lebanon, will refrain from a major assault on Israel.
- The S&P 500 could rally to a record high next year, helped by positive sentiment and resilient valuations, according to Lori Calvasina at RBC Capital Markets, who joins a band of Wall Street strategists predicting further gains for US stocks in 2024.
- Recent US Fed minutes show policymakers are united around a strategy to “proceed carefully” on future interest-rate moves and base any further tightening on progress toward their inflation goal. The minutes show the committee putting an emphasis on how higher interest rates were starting to squeeze households and businesses. (Dynasty’s view is that the current rate hiking phase is now complete but will remain data dependent.)
- The shock that rippled through global housing markets as central banks rapidly raised interest rates has given way to a cold new reality: The real estate bonanza that fuelled wealth for millions of people is over. Markets around the world have been caught with sharply higher borrowing costs that are likely to stay elevated next year in contrast to the previous prolonged period of low interest rates. That’s made housing in many areas even less affordable, while property owners with resetting loans face increasing financial strain.
- Sam Altman will return to lead OpenAI as CEO less than five days after he was ousted from the company. His departure set off a shock back-and-forth drama that transfixed Silicon Valley and the global AI industry. For now, the board will be led by Bret Taylor, a former co-CEO of Salesforce. The other directors are Larry Summers, the former US Treasury Secretary, and existing member Adam D’Angelo, the co-founder and CEO of Quora.
- Binance CEO Changpeng “CZ” Zhao stepped down and pleaded guilty to violating US anti-money laundering requirements in a Seattle federal court on Tuesday. He admitted to violating US laws as part of a $4 billion settlement resolving a years-long probe into illicit finance breaches at the world’s largest crypto exchange. With this move, the myth of “borderless” crypto companies is truly over.
- Investors in the world’s most valuable chip maker, Nvidia, expressed dissatisfaction with its estimate that revenue in the current period will be about $20 billion. Though that topped the average Wall Street prediction of $17.9 billion, some projections had reached as high as $21 billion. The share price fell 3% to $484.42 in New York on Wednesday, the biggest intraday drop in three weeks, but remains 233% up in 2023.
- As at Wednesday’s close (US markets were closed on Thursday for Thanksgiving), the S&P was 0.9% up for the week.
Local News
- Regular BusinessLIVE columnist, Justice Malala has argued that, should the ANC win at the polls and continue with its current ideological stance, which is ruining the country, South Africa will continue its downward spiral. He adds that splinter parties emanating from the ANC, such as the SACP, threaten the ruling party at the polls next year. However, many of the ANC policy choices that have throttled this economy will be straight from the SACP’s manifesto.
- In what Dynasty regards as a political move ahead of the 2024 elections, the two-pot retirement system will be implemented on 1 March 2024 as Parliament’s finance committee went against National Treasury’s advice and industry input. The splitting of approved retirement funds into two portions or “pots” will allow pre-retirement access to a small portion of a member’s benefits. National Treasury and the industry wanted the system implemented in 2025 to enable the South African Revenue Service and the industry to get systems in place.
- The US dollar spot index had weakened by 3.5% this past Tuesday after its interim peak on 04 October, on the view that the US Federal Reserve has reached the end of the current policy rate hike cycle. As a result, emerging market currencies in aggregate are still trading close to their fair value against the US dollar, leaving the USD/ZAR exchange rate as an outlier as the currency continues to reflect negative domestic pressures – this according to our rand research obtained from Analytics Consulting FX Solutions.
- Just because S&P Global Ratings affirmed South Africa’s BB- foreign currency rating and left the outlook as “stable” doesn’t mean we should rest on our laurels, writes Claire Bisseker, economics writer at Business Day. She said the country needs to heed warnings from S&P, Fitch Ratings and Moody’s in response to the recent Medium-Term Budget Policy Statement, which showed a sharp deterioration in the country’s debt outlook.
- Although the South African Reserve Bank has kept the repo rate at 8.25%, it delivered a hawkish tone after October’s consumer inflation surprised to the upside. Governor Lesetja Kganyago highlighted the risks associated with inflation and said that, while load-shedding had eased recently, it would still influence the economy with “domestic growth likely to remain muted”. The Bank raised its economic growth forecast to 0.8% for 2023 from 0.7% in September. It also increased growth forecasts for 2024 and 2025 by 20 basis points to 1.2% and 1.3%, respectively. (These forecasts are problematically low in our view.)
- It appears that Governor Kganyago’s comment on loadshedding yesterday was premature. Eskom re-introduced Stage 6 loadshedding today, representing a severe level of power cuts, to prevent a total collapse of South Africa’s electricity grid. Stage 6 will be in place until Monday. The return of this level of electricity rationing is a step backward for South Africa’s government that has prioritised stabilising the system.
- A new report from the World Bank has highlighted the huge toll the high crime rate is taking on the economy, with the Bank estimating crime costs the economy R700 billion a year, undermining growth potential and the welfare of citizens.
- A total of four hundred and four government departments and state-owned companies owe the South African Revenue Service R5.9 billion for the 2023/24 fiscal year, which comprises R2.4 billion in PAYE and R3.5 billion in VAT. However, 92% of departments and public entities pay their PAYE, VAT, and other tax obligations on time.
- Justice and correctional services minister Ronald Lamola has set in motion a rescue plan for the dysfunctional Master’s office which has a mess that has reached a crisis point, resulting in unacceptable delays in the winding up of deceased estates, and ratifying changes in Trust Deeds etc. The rescue plan aims to fix backlogs, improve digitisation, increase capacity, ensure standardisation and transparency, and to stop corruption in offices across the country.
- Although President Cyril Ramaphosa recently signed a Bill into law, creating the Postbank, it is already failing in terms of paying grants and more South Africans are turning to the private sector. According to the Outlier, nearly 60% of the monthly payments to the Social Security Agency grant recipients are made into private sector bank accounts, a number that is increasing.
- Telkom has reported a 46.7% jump in half-year profit, boosted by lower depreciation charges and growth in core profit. It also saw good growth in mobile service revenue, driven by value-compelling propositions.
- The return of international tourists post COVID-19 and the so-called semigration to Cape Town is fuelling trade at the popular V&A Waterfront, according to joint owner, Growthpoint Properties. It said on Wednesday, in an update for the three months to end-September, that retail sales improved 20% year on year and are up 43% from the same period in 2019, while visitor numbers jumped 49% year on year.
- At the time of writing, the rand was 2.8% weaker and the ALSI was 2.2% up for the week.
Sources: Dynasty, BusinessTech, BusinessLIVE, Engineering News, Daily Maverick, News24, Bloomberg, Moneyweb, TechCentral, Coin Desk, Reuters, Analytics Consulting, etc.
