South African Rand Rallies, Investors Spy Potential ANC/DA Coalition

File image, Democratic Alliance (DA). CC BY-SA 2.0 Deed Attribution-ShareAlike 2.0 Generic.

The South African Rand rose on Monday, with investors hoping the ANC and DA were positioning to form an alliance to govern the country.

The ANC fell well short of a majority needed to govern on its own but reports confirm negotiations are already underway with the DA - the party that won the second most votes in last week's vote - on forming a coalition.

The market views a coalition between the ANC and DA as a 'centrist' outcome that offers continuity that could even steer South Africa in a more market-friendly direction.

It is reported in-person talks between the ANC and the DA are "in full swing," with ANC first deputy secretary-general Nomvula Mokonyane attempting to leave the election results declaration event on Sunday early to meet with the DA's delegation.

The Pound to Rand is three-quarters of a per cent down on the day at 23.81, Dollar-Rand is at 18.74 (-0.27%) and Euro-Rand is 20.30 (-0.50%).

Investors will receive more information following Tuesday's meeting of the ANC's National Executive Committee (NEC), which is tasked with leading the party.

Senior ANC figures say the party won't compromise on demands made by another potential partner - the MK party - that President Cyril Ramaphosa stands down as a condition of support.

Local news publications say a coalition with MK "is quickly becoming a more distant possibility" after ANC secretary-general Fikile Mbalula was firm on Sunday that the party would not let go of its president in return for a coalition deal.

The rally in the Rand reflects a degree of relief as MK is considered a left-wing populist party that could ignite economic uncertainty and longer-term fiscal deterioration.

Nevertheless, compromises by MK as it softens its position during negotiations could yet see it pip the DA and form a government, underscoring the likelihood of notable ZAR volatility in the near term.

"The messy process of coalition deal-making will cast a shadow over the rand in the coming weeks," says Peter Stoneham, a Reuters market analyst.

Parliament will meet in 14 days and the shape of the new government and any change in the country's leader could be known by then.

"There are a few coalition permutations with positive and negative implications for the country's economy and investor sentiment," says Stoneham. "A makeup of populist parties and the ANC the most favourable but likely compromises on economic reform could still unsettle the rand."