With South Africans heading to the polls for the local government elections on 4 November, political headlines are set to dominate the news cycle. For investors, and especially those with retirement savings at stake, the bigger risk may not be the outcome of the election, but how they react to the noise around it.
Elections bring uncertainty, and markets dislike it. Coalition talks, campaign promises, and speculation about who will govern South Africa’s metros can all feed into short-term volatility, particularly when they coincide with an already unsettled environment. This year, record fuel prices, two interest rate hikes, and conflict in the Middle East have left many investors on edge before a single vote has been cast.
“Humans are emotional creatures and we tend to overreact,” says Hugh Hacking, Executive Head, Structured Investments and Annuities at Momentum Corporate. “Elections cause uncertainty in the market, so you often see volatility associated with them. And then we see people with retirement savings and other important savings making rash decisions.”
This year, however, the election is unlikely to be the main driver of market movements. Hacking points out that most of the current volatility stems from global events, which are feeding into fuel prices and general uncertainty. The risk, he says, is that election headlines add to investors’ anxiety, tempting them to react to political noise on top of genuine global pressures.
The cost of reacting to headlines
The most common mistake is also the most understandable one. Markets fall, investors panic and sell, and in doing so turn a temporary decline into a permanent loss.
“People think they’re acting rationally,” says Hacking. “But they often don’t realise that what happens in the short term is not a good predictor of what will happen over the longer term. Having sold at the low point, they lock in losses – but then markets go up again.”
Financial advisers spend a great deal of time during volatile periods “talking people off the ledge”, helping clients avoid changing their investments at precisely the moment they shouldn’t, he adds.
Recent history offers a useful reminder. When the 2024 national election results showed that the ANC had lost its outright majority, markets were initially cautious. But once the Government of National Unity was formed, the rand, bonds, and equities rallied. The JSE All Share Index ended June 2024 up 4.1%, while the rand strengthened by about 3%. Investors who sold in the early days of uncertainty would have missed that recovery.
“People were initially very negative and reacted accordingly, but the final outcome was more positive than before the election,” says Hacking. “The lesson is that quick reactions to events are seldom a good idea when it comes to long-term investments.”
What local elections mean for markets
Local elections typically carry less weight for financial markets than national ones but they still matter. “If there is a lot of difficulty in getting governing coalitions formed in the major metros, this will dampen confidence in the future, with a generally negative drag on equity markets and upward pressure on bond yields,” says Hacking.
Municipal performance also feeds into the broader economy over time. Large listed companies are usually not affected directly, but their employees and customers are. “Poor municipal performance tends to create an overall drag on the economy by diverting money and resources into making up for service delivery shortfalls,” says Hacking. “This makes it more difficult for companies to generate profitable growth.”
Separating the signal from the noise
With a 24-hour news cycle and social media amplifying every development, it can feel as though something significant is happening every hour. “Most of it is noise,” says Hacking. “The real signal in the weeks after the election will be signs of instability in local government that could carry through to the next national election and weigh on consumer and business sentiment.”
Even then, the role of professional investment management is to look past the day-to-day headlines. “It’s about looking through the noise at the underlying economics, the strength of the companies you’re investing in, and the outlook for different industry sectors. Decisions shouldn’t be based on what’s happening today, but on what you expect those fundamentals to deliver over the longer term,” he says.
For individual investors and retirement fund members, the lesson is similar: anchor decisions to your time horizon and long-term plan, not to the latest headline. “Have a strategy shaped for the long term and reassess it periodically, but not when you are feeling stressed,” says Hacking.
Taking the emotion out of volatility
For those close to retirement, volatility is more than an emotional challenge. A market fall just before someone retires can directly reduce the income their savings will provide. “It’s normal to be anxious with retirement looming,” says Hacking. In the last five years before retirement, an investment strategy should shift from mainly long-term growth to a better balance between growth and risk management. “Real growth above inflation in those last five years is really important, but the strategy should also be able to weather market downturns,”
This is where investment structures designed to cushion volatility can help. Smoothed bonus portfolios are one example. They set aside part of the returns earned in strong markets and use these reserves to support returns when markets fall. Many also offer guarantees that limit how far the value of members’ savings can drop. “They act as a shock absorber,” Hacking explains. “People’s savings don’t rise and fall to the same extent, which helps take some of the emotion out of market movements.” For members nearing retirement, this can mean that a poorly timed market fall has far less impact on the savings they rely on.
Yet many investors only look for this kind of protection once markets have already fallen. “When markets are doing well, people think they’ll keep doing well forever,” says Hacking. “Then they live with regret when markets don’t do well.”
A steady hand for an uncertain season
For individual investors, the steps are simple: remind yourself of your time horizon, avoid switching investments in response to headlines, and speak to a financial adviser before making any changes.
For employers and retirement funds, communication is key. “The biggest single role they can play is to communicate with members and urge them to stick to the long-term plan. Election periods are also a good time to check that default investment strategies remain appropriate for members nearing retirement” says Hacking.
Elections are an essential part of a healthy democracy, and South Africans should make their voices heard. But when it comes to retirement savings, the best response to political uncertainty is usually a long-term plan, and the discipline to stick to it.
