Simon Shares

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Elections and markets

Recording this on Wednesday afternoon, so voting is still on-going and I have no idea what the results will be. But some thoughts.

As a country fairly new to democracy we're really good at it and this is something to be very proud of, many countries (including supposed developed ones) are not nearly as good at democracy as we are. The IEC is world class and we accept the results. The majority party loses provinces, metros and the world doesn't end, we all just carry on. Sure there will be some messes in some places, but pretty much our voting is reflective of the will of the people.

On this point, if your party loses you don't get to call the winner voters idiots. People vote how they do for their own reasons. We don't all vote the same. That's democracy, if you don't like it there are plenty countries without democracy. I am already seeing some Tweets calling out voters of one or another party idiots. This smacks of immaturity and doesn't sit within democracy.

Polls leading up the election have mostly been in the same theme with the exception being the recent IRR polling data which has the ANC definitely losing Gauteng and likely losing nationally. But we fail to understand polling.

• Voter turn out is very important in polling for an election as is the methodology of the sample you're polling.
• Pollsters do a lot of post polling 'tweaking' so the potential for bias becomes very real.
• But being wrong doesn't make the pollster and idiot or a fraud. Polling is not an exact science and in a two horse race the margin of error is usually at least 3.5% and the victory margin is generally less. So even the polls for Brexit and Trump were within that margin of error.

Markets have already run hard locally since the late 2018 lows but will likely like the results. Not as to who wins, more that we're good at democracy. The argument that a strong victory for the ANC will be good for markets is bogus and cooked up by people who simple do not understand the ANC process or constitution. Removing Ramaphosa before the next ANC elective conference in 2022 certainly is possible but it is exceedingly difficult and not likely to happen. Importantly the losers in an election always work against the winners, always. Nothing special there.

So markets will like the result, pretty much regardless how much the ANC wins by. But will they go much higher?

We're already up almost 11% year-to-date and sure we can end the year higher. Heck much higher. But turning around South Africa, jailing corruption, getting GDP going again. This will all take time, it can happen. It is already happening and has been since 14 February 2018.

• The best place to be will be SA Inc. stocks, they'll benefit most from an improving economy locally. Offshore and US$ stocks will find it tougher as Rand strength is likely over the next few years.
• My election stocks would be the likes of City Lodge* (JSE code: CLH), Coronation* (JSE code: CML), retailers (my pick is Shoprite* (JSE code: SHP)). Heck about half the JSE is local and been killed over the last five years.
• Be careful with the truly beaten down, they will take longer to recover. They will eventually, but the market likes easy money so will initially move into those already responding. As always, buy the quality at good prices - nothing clever here.
• The Exchange Traded Fund (ETF) is probably the MidCap ETF from Ashburton, ASHMID. The index is only +4.7% year-to-date and full of SA Inc. The chart looks ugly, but it will start to recover in time.

Of course the wheels fall off if the wheels fall off globally.

* I hold ungeared positions.

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