U.S. presidential election causes financial uncertainty, says S. African Reserve Bank

The South African Reserve Bank said Thursday the recent presidential election in the United States presents an uncertain future in the financial markets with a possible policy shift.

Lesetja Kganyago, governor of the South African Reserve Bank (SARB), said the election continues to build on the uncertainty caused by the UK's exit from the European Union (EU).

"The global outlook has become increasingly uncertain following the outcome of the U.S. presidential election. While the new policy direction in the U.S. is still unclear, the markets have interpreted the outcome as being positive for U.S. growth in the short run," he said.

Kganyago said the commitments to tax cuts and higher fiscal spending on infrastructure are positive things expected from the Donald Trump administration. This would result in higher growth and inflation, particularly against the backdrop of an increasingly tight labor market.

He, however, said the timing and extent of the expenditure boost are highly uncertain at this stage. While the increase in infrastructure could be positive for the commodity prizes like gold and others, there are possible negative effects on the emerging markets.

"Other aspects of the possible new policy direction are likely to have an adverse effect on emerging markets. These include a possible more aggressive tightening of U.S. monetary policy in response to higher inflation and growth, which could also reduce the multiplier effect of the fiscal expansion," Kganyago said.

During his campaign, Trump has emphasized that he will cut foreign spending by withdrawing soldiers abroad and concentrate on domestic growth.

Kganyago said there has been a recent reversal of capital flows to emerging markets from the United States, coupled with an increase in the U.S. bond yields. This will negatively affect the emerging markets like South Africa currency and bond markets.

"Given the high degree of uncertainty, the financial markets may have over-reacted. A further concern for emerging markets is the potential change of trade policies that may impact on existing trade treaties, as well as unilateral increases in tariff protection in the U.S.," the Governor said.

The United States has an existing agreement with African countries which is called African Growth and Opportunity Act (AGOA). This allows some African producers to have a duty free access to the U.S. markets and the United States also enjoys similar measures in the African countries. It is unclear if Trump will maintain it.

"A more protectionist U.S. stance could reinforce the already slow growth of global trade," Kganyago said. Endi