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The recent US presidential race has been dubbed a moment in history where the rest of the world grabbed a box of popcorn and watched the election results coming in closer than expected. The saying ‘”when America sneezes, the World catches a cold” has seldom been more relevant than in the last few months. The COVID-related disruption to the US economy and the election of the new president will impact the rest of the world, be it for good or bad.
As part of the global economy, the South African market won’t be exempt from the impacts of events in the US over the last month.
US trade and financial markets* are just two aspects – very crucial ones for our country – that will be affected by the policies under the new US administration. When global investors are feeling optimistic about the world, and specifically about US stability, they tend to take on more risk by investing in emerging markets such as SA.
Looking at our local market’s performance after the events of the past four weeks, this was a clear phenomenon. The new US president taking up his seat supported South African assets, with the Rand strengthening to its best levels since the start of the Covid-19 pandemic and the equity and bond market improving. The Rand strengthened from R16 to R15.51 and the local bond market saw an inflow of R10bn in investments, which is positive news for the country.
One of the predicted shifts from Trump to Biden is the way in which they approach trading partners. Under the Trump administration, uncertainty ruled, and political instability was the order of the day. Within the borders of South Africa, there’s a perception that a Biden administration will be a more friendly and transparent global trading partner, which is pivotal for SA.
While both Biden and Trump agree that China is a powerful nation with whom trading must be restricted, Biden’s approach might be less aggressive. Not only did Trump impose tariffs on trade with China, but he also gradually withdrew from trade agreements with other nations due to being distrustful of foreign trade. Evidence of this is the 2018 tariffs imposed on South African steel and aluminium exports, which led to a downturn in the industry.
All eyes are on Biden to kick-start US economic recovery and to strengthen relationships with developing countries like South Africa, as well as with other developed nations. While we wait in anticipation for the newly elected president to take the stage, let’s hold onto the future prospects of the Biden blue wave.
🔤Words of the Week
*Financial markets: think about your local farmers market where people buy and sell fresh veggies and meat. In financial markets, people buy and sell financial assets such as stocks, bonds, foreign exchange etc.