BATANAI MATSIKA
“Maybe I’ll have to leave the country.”—President Trump pondered his future plans if he lost to Joe Biden during a campaign rally in Georgia.
The US presidential election are indeed a major theme for global markets.
American voters will have to decide whether Donald Trump remains in the White House for another four years.
The Republican president is being challenged by Democratic Party nominee Joe Biden, who has been in US politics since the 1970s.
Polling companies have attempted to gauge the mood of the nation by asking voters which candidate they prefer.
Joe Biden has been ahead of Donald Trump in most national polls since the start of the year.
He has hovered around 50% in recent months.
According to “The Economist”, Biden has held a wider lead over Trump in the polls than Clinton did in 2016 as illustrated in the graph.
Morgan & Co Research contends that a Biden victory is associated with a weaker dollar and better relative performance for equities outside the US.
We highlight that the US-China trade war has dominated headlines since President Trump took office.
The Trump administration has pulled out of several trade deals, introduced a new trade deal with Canada and Mexico, and levied hundreds of billions of dollars in tariffs on Chinese companies.
Trump has also demanded that Chinese firm Bytedance, owner of the app TikTok, sell its US operations, banned the sale of electronics components to Chinese telecom firm Huawei, and threatened to delist Chinese companies from US stock exchanges.
If Trump is re-elected, there are also fears he could start a trade war with Europe, as he has previously threatened to do.
In our view, this stance will lead to dollar strength which translates to weaker trading-partner currencies. For Zimbabwe, the concern is around rand weakness.
A Trump victory could trigger a stronger USD and by translation, a weaker ZAR.
South Africa is Zimbabwe’s major trading partner, and any changes in its currency in relation to the USD filters through into Zimbabwe.
A falling ZAR also makes Zimbabwean exports more expensive against competing products in South Africa.
Worse still, Zimbabwean companies will suffer from cheap imports as South African products with lower prices muscle out locally-made products.
We have identified ZSE-listed companies that could be negatively impacted by a weakening ZAR as a result of both imported and smuggled goods.
These include Axia (Household goods), ART (batteries and stationery), AfDis (spirits), BAT Zimbabwe (cigarettes), Dairibord (milk products), NatFoods (food), OK Zimbabwe (food), Powerspeed (electricals), Edgars (clothing), NTS (tyres), Star Africa (sugar), Turnall (building materials) and Truworths (clothing).
This dynamic also demonstrates the need for businesses in Zimbabwe to focus on improving production efficiencies so as to remain competitive in the new global economy.
All in all, we think the 2020 US presidential election could increase volatility more than usual.
President Trump has proved to be a bigger “market mover” than his predecessors like President Obama.
There is also the likelihood of a contested election (i) if Trump loses and (ii) if the results are close.
That said, a one or twomonth dispute will still impact on social and economic volatility.
Investors on our markets should remain overweight in regional plays (SeedCo and Simbisa Brands) and export-oriented counters like Padenga Holdings and Hippo.
Batanai Matsika is the Head of Research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com
