South Africa is heading into unchartered political terrain and investors are growing increasingly anxious.

The rand slumped 0.9% against the dollar on Wednesday immediately after an opinion poll by the Social Research Foundation showed support for the ruling African National Congress (ANC) falling to just 37% before next month’s election, down from 57.5% five years ago.

Six out of seven other surveys conducted since last year also show the party losing the parliamentary majority it’s held since apartheid ended three decades ago, albeit by a smaller margin.

Failing to get at least 50% may force the ANC into a coalition to govern. The question is whether that would be with smaller parties who’d keep the ANC — with whom investors are already familiar — fully in charge.

If the ANC’s loss of support is severe, it might choose to ally with the leftist Economic Freedom Fighters (EFF), or a new party led by former President Jacob Zuma. It could also go in the other direction and form a government with the main opposition Democratic Alliance (DA), which says it’s pro-business.

The cost of hedging against rand declines over the next two months is hovering at a 10-month high as the election moves into traders’ focus.

Two-month implied volatility, which covers the May 29 poll, has jumped about 270 basis points after hovering around a four-year low in March. And the hedging is heavily skewed toward rand weakness, with the USDZAR risk reversal doubling since late February.

The poll by the SRF — the methodology of which was questioned by some analysts — showed the EFF’s share of the vote holding at 11%, unchanged from 2019, although another survey published by Ipsos last month indicated it could go as high as 18%. Zuma’s uMkhonto weSizwe Party, or MKP, was projected by the SRF to pick up 13%, with the DA on 25%.

The SRF findings should be “taken with a pinch of salt” and probably underestimate support for the ANC, though it’s a stark illustration of the ruling party’s vulnerability, said Oxford Economics Africa analyst Louw Nel in a research note.

Africa’s most-industrialised economy has stagnated over the past decade, with power cuts and logistics snarl-ups curtailing output while poverty, unemployment and crime remain rife. But investors don’t relish the prospect of the policy uncertainty and political wrangling that would likely accompany a coalition government.

The EFF is vying to boost its sway in next month’s election and party leader Julius Malema sought to assure the business community that it would offer investors clarity, consistency and transparency — something he said the current administration has failed to do.

“What any investor wants is a clear policy as to what the policy is, and not government speaking in forked tongues,” he said in an interview at Bloomberg’s office in Johannesburg on Wednesday. “Investors leave politics to politicians because they know they’ll still make money if they know and are assured about security and policy.

‘Fearmongering’

Senior ANC leaders say they’re confident of winning the election outright, and aren’t considering coalitions at this juncture. Malema played down “fearmongering” about what it would mean for businesses and private ownership if the EFF formed part of the next government.

The nationalisation of mines, for example, would be a controlled process and would take lessons from neighbouring Botswana – which last year struck a deal with De Beers to sell about 30% of the diamond output from its Debswana joint venture with the company, with an agreement for that share to eventually rise to 50%.

“We are not going to take land the Zimbabwean-style or anything of that sort,” he said, referring to often-violent land seizures in the neighbouring country that resulted in more than 4 000 farmers losing their farms. “No one is going to be taken to the sea. No one is going to be killed. No one is going to lose his property on the basis of colour.”

He acknowledged that foreign investors might be sceptical and the rand may suffer “an attack” from capital flight.

“It will not be for the first time that the capitalists want to impose themselves on people through disinvestment,” he said in a separate interview with Jennifer Zabasajja on Bloomberg Television. “The only thing is do you have alternative markets when they disinvest — China is more than willing to come in. Russia is more than willing to come in.”