INVESTORS are favouring the comfort of the sidelines ahead of South Africa’s elections and watching for any potentially controversial policy moves if the ruling African National Congress (ANC) loses ground to rising opposition forces.

The JSE reached a record best level on Friday of just more than 49,000 points, but on Monday eased off as growing tension in the Ukraine boosted gold and safe-haven fixed-income funds. Further, a contraction in Chinese manufacturing for the fourth month running left most equity markets in the red.

Southern Charter chief investment officer and director Ursula Maritz said on Monday that while markets tended to "look through" big, short-term events like an election, there was some concern the ANC would lose ground to more radical parties such as the Economic Freedom Fighters (EFF). "The election is a bit of a non-event for markets, but a concern is if the (EFF) wins too many votes and there is a swing to the left and away from the National Development Plan (NDP)."

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The NDP provides markets with much-needed policy direction due to its strong focus on growth and jobs.

RMB economist Mamello Matikinca said markets were watching to see if the EFF mustered more than 5% of the vote and if the ANC fared worse than expected. The new opposition party favours nationalisation and is led by former ANC Youth League firebrand Julius Malema.

Some offshore investors have argued that a lower ANC share of the votes would be positive for the country as it would dilute its stranglehold on power and foster democracy. "(But) some locals, though, have pointed out that an ANC share under 60% would put the NDP — a market-friendly programme — in jeopardy."

A "moderate sell-off" in the rand, bonds and equities can be expected if the EFF gets closer to the 10% mark.