More than two billion voters are headed to the polls this year in what has been described as one of the most consequential election years in human history.
Nations representing about half of global GDP are holding elections this year, headlined by the economic powerhouse, the US, and the world’s most populous country, India.
Below, five market commentators examine the implications of these major elections set to take place this year.
Look at sector-level impacts in the US
By Nicole Vettise, client portfolio manager at Neuberger Berman
Equity markets have historically reacted most favourably to a Republican clean sweep of the presidency and Congress, but least enthusiastically to a Republican president facing a divided legislature. Investors tend to prefer a Democrat when paired with a divided or opposing Congress.
This year, investors do not appear to mind who wins the election, but they dislike the uncertainty and will be glad to get it out of the way. Hard-to-call elections are usually followed by strong performance as uncertainty is removed – a consideration that may be relevant this year.
Rather than thinking about the economic impact of an election across the whole market, it has been more productive to examine the effects on individual sectors in the past. Take the 2016 election for example – investors had anticipated a Clinton victory so flocked to small-caps and financials after Trump’s win, quickly pricing for a regulation-slashing, tax-cutting, free-spending, ‘America-first’ administration.
We could see something similar this time around, with small-caps poised for some a catch up, with regional banks and consumer finance likely to benefit from Republicans cutting regulation and reducing the current scrutiny of fees. In a switch from historical assumptions, the defence sector appears highly exposed to election risk and more likely to benefit from a Democratic win.
Continuity in Indonesia and India
By Mali Chivakul, emerging markets economist at J. Safra Sarasin Sustainable Asset Management
Indonesia will head to the polls in February as president Joko Widodo steps down, unable to run for a third term. The candidacy of minister of defence and military strongman Prabowo Subianto will be boosted by having the current president’s son as his running mate. But Subianto does not have clear verbal support from Widodo, with the party party offering another candidate – Ganjar Pranowo.
Subianto is currently leading in the polls at 39%, compared to Pranowo’s 30%, yet all candidates have suggested that they will continue the current president’s policies.
The entrance of Widodo’s son into the election suggests the president has exerted his influence to create a new political dynasty. Indonesia has been governed by a couple of families since independence, and Jokowi is now creating a new one.
A few months later in April and May, India will also hold its own elections. Prime Minister Narendra Modi recently won three of the four regions voting in state elections. This state-level victory has strengthened Modi’s bid for another term at the upcoming general election, where he is expected to run the campaign on policy continuity.
Modi’s approval rating has been consistently high, with the latest figure at about 76% – the highest among all global leaders. A Modi win would allow him to continue implementing structural reforms that facilitate foreign investment which is eager to take advantage of India’s domestic market and diversify away from China.
A Labour win in the UK is not an issue for markets
Charles-Henry Monchau, CIO at Bank Syz
Labour could win a 1997-style landslide if an election were held today, according to the latest data from YouGov. We could have a result reminiscent of the 1997 general election outcome this year, which saw Tony Blair’s Labour win a huge number of seats against John Major’s Conservative party.
The current Labour party is indeed close to Tony Blair’s in the late 90s. It is pro-business and not dogmatic, exemplified most recently in Keir Starmer’s withdrawal from the plan to spend £28bn a year on green investment.
We therefore don’t see a Labour victory as a big issue for markets. The UK economy is not in great shape and this is why Labour has a chance to get elected – poor macroeconomic conditions are already reflected in asset prices.
A much bigger problem for an incoming Labour government will be the need to improve public services at a time when funds are lacking. A big fiscal spending plan with unclear funding would most likely push gild yields up and weigh on the pound. This remains the biggest unknown from our point of view.
More than an election in Mexico
By Gustavo Arteta, lead LatAm economist at PGIM Fixed Income
The general election in Mexico is a big deal, with voters choosing between two economic models and two political power structures in June. Which they decide will define the path for the economy and social development for the next six years and beyond.
Mexico will choose more than a president. The entire federal congress is up for renewal, along with nine of 31 state governors and more than 20,000 local posts. It is a chance for an overhaul or a consolidation of the political structure of Mexico. The two paths would have defining ramifications on nearshoring, energy, and fiscal reforms, US bilateral relations, the Supreme Court’s independence, as well as other key democratic and regulatory institutions.
In the presidential race, Claudia Sheinbaum from the incumbent Morena alliance maintains a comfortable lead in polls (with 63% of voter preferences) compared to opposition leader Xóchitl Gálvez with 31%.
The leading Morena party aims to obtain qualified majorities in both chambers of Congress to facilitate constitutional reforms, but current projections hint it may be out of reach. Nevertheless, polls suggest Mexicans will vote to extend the model AMLO started – one where the hegemony of Morena will be used to consolidate a bigger role of the state and guidance of the economy.
Uncertainty in South Africa as ANC popularity dims
By Anton Tonev, head of strategy for the Trium Larissa Macro fund
South Africa’s national legislative elections are expected to be held between April and August. According to polls, the ruling African National Congress (ANC) is unlikely to win an absolute majority for the first time since it first came to power in 1994. This has been driven by allegations of corruption, energy supply instability resulting in blackouts, and issues in state-owned firms impacting the country’s economy.
The ANC is currently polling at its weakest-ever level of about 40%. Meanwhile, the main opposition party, the Democratic Alliance (DA), is polling even lower and is also unlikely to win an absolute majority – even in coalition with smaller parties.
All bets are off if South Africa is governed by a coalition government for the first time in its modern history. The outcome ultimately depends on the split of the vote – the more votes the ANC receives, the less dependent it will be on coalition partners, and less the status quo will change.
An ANC coalition with the third-largest party, the far-left Economic Freedom Fighters, would result in the largest shift away from market-friendly policies. However, if the DA manages to form a coalition, expect a slight shift to the right and more market-oriented policies – though this carries a higher risk of social unrest.
See also: Elections bring uncertainty but investors must stay hopeful
