Bloomberg News - It's Election Year in South Africa But Traders Aren't Panicking

By Colleen Goko

With about four months to go before South Africa’s election, traders are holding their nerve.

Six-month implied volatility for the rand versus the dollar has declined 155 basis points since the start of the year as investors increasingly price in a comfortable victory for the ruling African National Congress. The vote will be in May, though an exact date hasn’t yet been set.

Expected price swings have been lower than actual volatility since September, and the gap widened since the beginning of 2019. That suggests traders are anticipating fluctuations to moderate further over coming months.

“Perhaps this reflects market expectations that political uncertainty will diminish and that the Ramaphosa administration will be able to focus on making significant progress on economic reforms,” said Piotr Matys, a London-based emerging-markets currency strategist at Rabobank. “But the market will be sensitive to any new proposals that could be potentially revealed ahead of elections that could lead to a higher budget deficit or would be interpreted as fading commitment to consolidate public finances.”