How Elections Worldwide are Already Roiling Markets

2024: A Year of Political Turmoil and Market Uncertainty

The year 2024 has been marked as exceptional due to the numerous political elections taking place around the world, a situation that can have significant repercussions on financial markets.
Surprising outcomes in some of the largest developing countries have already highlighted how vulnerable markets are to political issues, showing the dangers of relying solely on opinion polls to predict results.

Impact on Global Markets

From Mumbai to Mexico City, the year of elections – with 40 countries holding national votes – has already impacted investors, serving as a timely warning with elections in the European Union and the UK approaching, just ahead of the US presidential competition.
While forecasts often accurately predict major results, such as Claudia Sheinbaum’s landslide victory becoming Mexico’s first female president, they can miss more nuanced outcomes, like the number of seats Modi’s party would secure in parliament.

An analysis by Bloomberg explores the risks for investors amidst electoral dynamics.
The stakes have risen as entrenched populism and growing nationalism blur the lines between politics and markets.

Lessons from Mexico, India, and South Africa

Prior to the Mexican elections, analysts correctly predicted Sheinbaum’s presidency but underestimated her party’s potential absolute majority in congress.
When they came close to achieving it – falling just a few seats short in the Senate – markets took a hit.
The peso, previously the best-performing currency globally, plummeted by 5% in two days, disrupting its attractiveness for carry trade strategies.

In India, exit polls greatly overestimated the Bharatiya Janata Party’s victory.
When actual results showed Modi’s party losing parliament majority, the stock market plunged, with the NSE Nifty 50 index dropping nearly 6% in its worst performance in over four years.

Political risk nuances challenge market evaluation, as highlighted by UBS Global Wealth Management’s chief economist, Paul Donovan, cautioning against over-reliance on opinion polls.

South Africa saw money managers anticipating the ruling African National Congress to comfortably govern with a smaller party.
The scenario turned complex, pushing the ANC to explore a broader coalition and dragging its currency down.

Financial specialist Nick Rohatyn emphasized how swift investors can be penalized for overcommitting to an outcome.

What Lies Ahead for Europe, the UK, and the US

The upcoming noteworthy elections in Europe for the EU Parliament and in the UK have drawn attention.
With 373 million EU citizens across 27 countries selecting MEPs, these elections will shape trade policies, budget rules, and climate decisions, serving as a political indicator against the rise of far-right parties.

In the UK, polls for the July 4th elections predict a win for the opposition Labour Party, with debates on the extent of their expected victory.
A possible landslide could drive progressive policies, potentially revising tax regimes for wealth distribution.

As the US gears up for a Biden-Trump showdown, traders brace for heightened volatility.
A Trump comeback could escalate trade wars, impact bond markets, and devalue currencies, prompting strategic stock selections based on potential election outcomes.

Emphasizing the transient nature of polls, investors are urged to navigate political uncertainty with caution and adaptability.