JOHANNESBURG – The fate of the rand and South African government bonds will be tied to the extent of the ruling African National Congress’s projected majority win in Wednesday’s elections, and what that would entail for policies, according to analysts.

They spoke as South African assets were on Tuesday signaling increasing investor anxiety in Africa’s most industrialised nation.

Incumbent, President Cyril Ramaphosa will require a huge win to introduce fiscal and policy reforms in the face of opposition from factions within his party.

“President Cyril Ramaphosa’s ANC is all but certain to win this week’s election, but we are skeptical that this will provide impetus to his sluggish reform drive,’’ said John Ashbourne, a senior emerging markets economist at Capital Economics.

This was said in a note to clients.

“The ruling party will, after all, remain sharply divided. We expect that progress will be slow.’’

On Tuesday, the rand gained 0,2 percent to 14,4419 per dollar by 08:28 am in Johannesburg, after weakening by 0,8 percent on Monday. 

Volatility measures leave no doubt that rand traders see the election as an immediate, two-way risk. One-week implied volatility for the rand against the dollar has climbed above longer-term measures for the first time since March, and is now higher than any other emerging-market currency including the beleaguered Turkish lira.

The premium of options to sell the currency in the next week over those to buy it, known as the 25 Delta risk reversal, has jumped to a one-month high, suggesting traders are more inclined to hedge against rand declines in the immediate aftermath of the vote. “An ANC majority win nationally of close to 60 percent or higher is currently being seen as likely to strengthen the rand,” Annabel Bishop, chief economist at Investec Bank Ltd.

“A material swing towards the left-wing populist parties, either in an election result, or in ANC coalitions after the elections, is believed to risk substantial rand weakness.”

While the options market indicates anxiety over the election itself, bond yields suggest investors are also concerned about long-term prospects for the economy. South Africa’s yield curve has steepened to the widest this year as the rate on 10-year securities rose more than that on two-year bonds. While this is partly due to an increase in longer-dated issuance, it also reflects concern about the implementation of much-needed policy reforms to boost the economy.

“Foreigners aren’t looking at picking up long-term risk due to uncertainty with regards to the fiscal issues South Africa is facing,” said Michelle Wohlberg, fixed-income trader at FirstRand Bank.

Non-residents have sold a net R5,9 billion rand of South African bonds since mid-April, according to JSE data.