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South African assets gain on rising hopes of market-friendly coalition

SOUTH Africa’s rand, stocks and government bonds gained, as investors bet on the prospect of the African National Congress (ANC) striking a coalition deal with a market-friendly party after failing to get a majority in last week’s election.

The assets tumbled last week on worries of a tie-up with the more radical parties like the far-left Economic Freedom Fighters (EFF) or former president Jacob Zuma’s uMkhonto we Sizwe (MK), compared to a coalition that brings in the pro-business Democratic Alliance (DA).

Financial and political analysts said on Monday the chances of an ANC-DA pact were higher than one involving MK or EFF.

“The most likely result of South Africa’s May 29 election is a deal between the ruling African National Congress and the centrist Democratic Alliance, which would keep key economic policies unchanged and slightly improve the country’s fiscal and growth outlook,” BMI analysts said in a research note.

The ANC got 40.2% of the vote last week, with the DA coming second at 21.8%, MK third at 14.6% and the EFF fourth at 9.5%.

At 1351 GMT, the rand traded at 18.6225 against the U.S. dollar, up around 0.8% from Friday’s close.

On the Johannesburg Stock Exchange, the Top-40 index (.JTOPI) was up about 1.4%. The yield on the benchmark 2030 government bond fell 10.5 basis points to 10.595%, reflecting a stronger price.

Johann Els, chief economist at investment group Old Mutual, said markets would view a coalition between the ANC, DA and the socially conservative Inkatha Freedom Party (IFP) favourably due to “the promise of more policy reform, stronger implementation, and a firm stance against corruption”.

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The IFP got 3.9% of the vote in the election.

Els cautioned that markets were likely to remain volatile over the coming weeks and that a negative coalition outcome would spark a selloff.

Local media have reported that the DA could be open to entering a cooperation pact with the ANC, supporting it in key decisions in exchange for top jobs in parliament.

Political parties have two weeks to work out a deal before the new parliament sits and chooses a president, still likely to be ANC leader Cyril Ramaphosa since the party remains the biggest force.