The relationship between elections and the Johannesburg Stock Exchange

In light of the historic results of South Africa's recent general elections, South African investors, stakeholders and business owners have been faced with a period of uncertainty. 3Cube Property Solutions takes a look at the relationship between elections and the Johannesburg Stock Exchange, taking into consideration past data and current sentiment.

A recent article penned by the Daily Investor points out that while elections have strongly influenced the performance of the Johannesburg Stock Exchange (JSE) in the past, there is no set pattern as to how that influence plays out. It is also evident that elections are not the biggest influence on the stock market's performance.

The fact that a number of countries and regions, including South Africa, the USA, the UK and the European Union are having or have had elections this year means that the possibility for political uncertainty is perhaps unprecedented on a global scale. Many investors have expressed unwillingness to commit until they know the results of various elections.

Coalition goals

Closer to home, South Africa's election results are historic, with our nation's liberating party having lost its grip on power to some extent in just 30 years. As is pointed out in an opinion piece written for Moneyweb by Business Leadership South Africa CEO, Busi Mavuso, the new coalition partners have a golden opportunity to reestablish confidence - both among investors and South African citizens. She points out that the coalition must move decisively and commit to getting the economy moving to reverse the shrinkage of the first quarter of 2024. The sentiment has been echoed by President Cyril Ramaphosa, who has stated that the country's next administration must prioritise accelerating economic growth.

Mixed results from election years

In the article cited above, Daily Investor has put together a table showcasing how the JSE All Share Index and All Bond Index have fared historically in election years in South Africa. The results vary wildly, indicating that the fact that there is an election does not have a particular correlation with share trading. In 1966, for example, the JSE All Share was at 21%, while in 1970 (the next election year), it was at -26%. More recently, it was at 32%, 11% and 12% in 2009, 2014 and 2019 respectively. This data was collated by Debra Slabber, portfolio specialist director at Morningstar South Africa.

The clear takeaway from this, as the article points out, is that elections don't take place in a vacuum. There is an array of other macroeconomic and sociopolitical forces at play, all of which influence the JSE and the price of assets. An example is cited of the last US elections, held in 2020, in which the COVID-19 pandemic played a far more significant role in market performance than Joe Biden's election. It should also be borne in mind that initial reactions to political events like elections don't tend to persist and that long-term forces like earnings and cash flows tend to emerge as bigger drivers of markets than politics.

South Africans - and especially South African investors - have had to weather various storms over the years, including poor economic growth, state capture, an unstable energy supply and deteriorating infrastructure, to name just a few. In light of all these factors, politics is clearly seen as just one of many forces that have an impact on asset prices.

In times of uncertainty, every business needs something they can rely on - and in many cases, that can be their premises. If you're looking for the right commercial, industrial or retail property in Gauteng or the Western Cape, get in touch with 3Cube Property Solutions today.