If you are reading this, you have survived a dramatic week at the polls in both the USA and SA. You have also witnessed a dramatically volatile week on the investment markets. If we take a closer look, we see the following:
USA
The Americans voted in their mid-term elections on the 3rd of November and the Democrats smashed the Republicans to take over the House and Senate. The initial reaction on the markets was positive with the Nasdaq gaining 1.44% and the S&P500 1.58%, but things turned ugly on Thursday when the Nasdaq dropped 5.52% and the S&P500 came down 4.36%. Why this happened is probably rooted in the fact that the Democrats are not as business-friendly as the Republicans and mostly negative towards the AI buildout, especially the building of new data centres, which are crucial for winning the AI race. As we have explained in previous writings, investors are already jittery about the massive capital raise required by tech companies and the expectations built into their share prices for the conversion thereof into future potential profits to be generated by the AI buildout. With the Democrats now in a position to make Donald Trump a lame-duck president, valuations for technology companies are under scrutiny.
It is clear that Trump overplayed his hand when he started the war with Iran. It was never a popular thing to do and he has conceded that it is partly to blame for the loss at the ballot box. With all of this said, the AI rollout will carry on and the major players in that industry will be the winners five years from now. Political disruptions can cause shorter-term volatility but sound economics will be triumphant in the long run. Once the dust settles, the current situation will create investment opportunities in both the broader markets and technology sector.
RSA
In our local elections we saw the ANC lose ground and the DA gaining ground. Just like in the case of Donald Trump, arrogance caused the ANC to lose many voters who are tired of corruption and poor service delivery. The South African share markets had a fantastic day last Thursday with the All Share gaining 3.67% and the Top40 up 3.99%. This is probably due to the results in the USA rather than our local politics, but why let the facts get in the way of a feel-good story. Naspers, banks and all the goldmining companies had a good day and in general SA companies saw a positive move upwards. This country has got so much potential if we can get the political will sorted out. As long as we can count on freedom of speech, an independent judiciary and free and fair elections, we can live a good life.
The voters have spoken. Change is not a bad thing. Let us see how things develop from here.