United Kingdom
Select your role
The year of the ballot
Elections often move markets. This year, eight of the world’s 10 most-populous nations go to the polls in the same year for the first time ever. FX markets are often the best way to express views or hedge positions in and around elections, and FX volatility presents a source of potential alpha. We have produced this piece to help investors navigate this year. The year of the ballot.
22 Nov 2024
25 minutes
Overview
Elections often move markets. In 2024, eight of the world’s 10 most-populous nations – the US, India, Brazil, Indonesia, Bangladesh, Mexico, Pakistan, and Russia – go to the polls in the same year for the first time ever. More than 50 countries are electing governments1. So, we can reasonably expect FX volatility.
Voting takes place in the Global North and South, across developed and developing markets. More than two billion people are entitled to cast ballots. Depending on where we look, we might see ideologies reshaping economies, challenges to institutions, polarisation by region or market, new assessments of debt, and deep ebbs and flows of trust.
Adopting a crystal ball is unwise, in this environment or any other. There is no clear and obvious recipe for portfolio positioning around elections. Some markets can take time to price in the outcome. Others can move rapidly. Some emerging market (EM) countries choose to intervene directly in their currency market to counter volatility. Others choose not to. Because of the variable responses, and generally better liquidity, FX markets are often the best way to express views or hedge positions in and around elections.
What we also know is that FX volatility presents a source of potential alpha. So, we are alert to the factors we can see and source around every election which might influence our markets. We are alert, also, to what we might learn from the past.
We have undertaken historical analysis of FX performance covering close to 100 elections across over 20 EM countries2. This suggests there is significant alpha potential given heightened dispersion. For example, in the six weeks into and out of an election, the average FX move of both the top and bottom quartiles is around 3.5% higher and 3.5% lower than the broader market returns.
With that in mind, we have produced this piece to help investors navigate this year. The year of the ballot.
To be sure, nothing is certain, because the impact of each election will vary, depending on the country and its existing economic and political conditions. In our own analysis, we often handle election uncertainty by plotting scenarios, with estimated probabilities. Keeping them live as news updates. Mispriced assets often emerge with this simple yet intuitive process. Our analysis below considers ballots likely to have a high, medium or low impact on emerging market risk assets and also summarises elections that have already taken place.
The elephant (and donkey) in the room is the mightiest nation of all. The election in the US. That is where we begin.
1 Source: World Economic Forum.
2 We have excluded elections that do not represent genuine prospect of political change (e.g Russia, some sub-Saharan African countries) or in markets where the exchange rate is pegged.
Election overviews
The impact of each election will vary, depending on the country and its existing economic and political conditions. We have broken down the analysis into three distinct sections. The first covers ballots likely to have a high impact on emerging market risk assets. The second covers ballots likely to have a medium impact. The third is a summary of ballots with an anticipated low impact. We also summarise outcomes of elections that have already taken place and elections where results either have been or are likely to be heavy landslide victories in favour of the incumbent, given a lack of democratic representation.
United StatesPopulation 333.3 million3Date 5 November |
High impact |
Background
The highly anticipated US election turned into an impossible-to-predict race between the Democrats (Kamala Harris) and Republicans (Donald Trump), with most polls pointing to a very close result. In the end, Donald Trump secured victory. Republicans have taken control of the US Senate and – at the time of writing – look set to keep their majority in the House, which would produce a full sweep for the party in Congress.
In the run-up to the election, volatility in fixed income markets centred around the potential implications for tariffs and the US Treasury market (relating to US fiscal policy direction) – the key transmission channels for EM sovereign markets from the US election. Specifically, Trump’s election campaign pointed to the following potential implications:
- Trade: Trump floated a plan to impose a 10% tariff on all imports (vs. current average 3%), aiming to incentivise US domestic production. He also threatened a blanket 60% tariff (or more) on imports from China. Even if Canada and Mexico are exempt under the United States-Mexico-Canada Agreement, this would be a major escalation of US trade protectionism, increasing tensions with major trade partners. India and Indonesia would likely be net beneficiaries relative to the rest of Asia, particularly China.
- Geopolitics: Trump threatened to withdraw all military and financial support for Ukraine. He stated that he could push for Ukraine to negotiate an end to the war with Russia, implying it should accept the loss of land currently under Russian occupation.
Our thoughts on the election result
Ultimately, both the current Democrat presidency and Trump have had a mixed market impact in their respective terms, and our team has navigated the uncertainty through a focus on bottom-up best ideas that complement the overall top-down view the team has through the market cycle. We will continue to adopt this approach.1
The short-term reaction to the election result has seen market participants price key themes/outcomes related to Trump’s expected policy path:
- An anticipated rise in growth and inflation, led by the US economy, is evidenced by rising yields in the US Treasury market – relating to higher fiscal spending and deregulation – and the US dollar strengthening. This has boosted high-yielding asset markets (pushing down credit spreads in riskier parts of the bond market).
- Concerns around trade tariffs have caused some European and Asian markets – primarily manufacturing-heavy economies – to underperform.
- An expected shift in gear on the geopolitical front has boosted Ukrainian and Israeli bond prices, reflecting the view that Trump will try to expedite peace deals with the respective regimes.
On tariffs, markets seem to be in wait-and-see mode. While Trump’s rhetoric on tariffs has been tough and alarming, what happens in practice is yet to be seen, making it difficult to gauge – and price – the size and scope of eventual tariffs. That the market reaction has not been stronger makes sense in the context of Trump’s previous term in office: what he threatened differed significantly from his eventual policy, including the trade relationship with China.
It is also important to note that Biden’s administration upheld many of Trump’s trade policies, meaning markets and economies have had eight years to adjust to a more protectionist US regime and markets have largely positioned for an ongoing tense relationship between China and the US. Broadly, almost a decade of US protectionism and increased polarisation of the global economy is not a new theme and global supply chains have already adjusted. Furthermore, China’s domestic policy is more important for the country’s economic growth than any policy moves by Trump. However, it will be important to monitor potential exemptions to trade tariffs for the most exposed economies, including Mexico and parts of Central and Eastern Europe.
In that vein, and crucially for active investors, even if trade is squeezed in some emerging markets, others will benefit – outside of South-East Asia, parts of Central America are already benefiting from nearshoring, for example. These trends look set to continue; the risk is that there’s a shock around the scale of protectionism and the size of tariffs.
The path of the dollar
As noted above, the market’s short-term reaction to Trump’s ‘America first’ policy is seen via the continuing strength of the US dollar. A strong US dollar is not helpful for emerging market assets, but it is something investors have been dealing with for a decade now.
Longer term, the path of the US dollar is less certain and likely to be less linear, not least because of the many contradictions in Trump’s policy agenda and parts of his administration that are actively calling for a weaker dollar to boost the domestic manufacturing sector.
Portfolio positioning
The short-term outlook – reflecting growth-friendly policy in the US and continued easing in global liquidity conditions – favours higher carry and higher yielding markets. We are taking a selective approach in FX markets given the uneven impact of tariffs and uncertainty around these. In rates markets, there are still plenty of economies where combination of high real (inflation-adjusted) interest rates and benign inflation outlook means that EM cutting cycles across select markets is likely to continue into 2025, creating a positive outlook for bond prices in these markets into 2025.
1 For more information on investment process, please see Important information section.
United States (updated)
United StatesPopulation 333.3 million3Date 5 November |
High impact |
Background
The highly anticipated US election turned into an impossible-to-predict race between the Democrats (Kamala Harris) and Republicans (Donald Trump), with most polls pointing to a very close result. In the end, Donald Trump secured victory. Republicans have taken control of the US Senate and – at the time of writing – look set to keep their majority in the House, which would produce a full sweep for the party in Congress.
In the run-up to the election, volatility in fixed income markets centred around the potential implications for tariffs and the US Treasury market (relating to US fiscal policy direction) – the key transmission channels for EM sovereign markets from the US election. Specifically, Trump’s election campaign pointed to the following potential implications:
- Trade: Trump floated a plan to impose a 10% tariff on all imports (vs. current average 3%), aiming to incentivise US domestic production. He also threatened a blanket 60% tariff (or more) on imports from China. Even if Canada and Mexico are exempt under the United States-Mexico-Canada Agreement, this would be a major escalation of US trade protectionism, increasing tensions with major trade partners. India and Indonesia would likely be net beneficiaries relative to the rest of Asia, particularly China.
- Geopolitics: Trump threatened to withdraw all military and financial support for Ukraine. He stated that he could push for Ukraine to negotiate an end to the war with Russia, implying it should accept the loss of land currently under Russian occupation.
Our thoughts on the election result
Ultimately, both the current Democrat presidency and Trump have had a mixed market impact in their respective terms, and our team has navigated the uncertainty through a focus on bottom-up best ideas that complement the overall top-down view the team has through the market cycle. We will continue to adopt this approach.1
The short-term reaction to the election result has seen market participants price key themes/outcomes related to Trump’s expected policy path:
- An anticipated rise in growth and inflation, led by the US economy, is evidenced by rising yields in the US Treasury market – relating to higher fiscal spending and deregulation – and the US dollar strengthening. This has boosted high-yielding asset markets (pushing down credit spreads in riskier parts of the bond market).
- Concerns around trade tariffs have caused some European and Asian markets – primarily manufacturing-heavy economies – to underperform.
- An expected shift in gear on the geopolitical front has boosted Ukrainian and Israeli bond prices, reflecting the view that Trump will try to expedite peace deals with the respective regimes.
On tariffs, markets seem to be in wait-and-see mode. While Trump’s rhetoric on tariffs has been tough and alarming, what happens in practice is yet to be seen, making it difficult to gauge – and price – the size and scope of eventual tariffs. That the market reaction has not been stronger makes sense in the context of Trump’s previous term in office: what he threatened differed significantly from his eventual policy, including the trade relationship with China.
It is also important to note that Biden’s administration upheld many of Trump’s trade policies, meaning markets and economies have had eight years to adjust to a more protectionist US regime and markets have largely positioned for an ongoing tense relationship between China and the US. Broadly, almost a decade of US protectionism and increased polarisation of the global economy is not a new theme and global supply chains have already adjusted. Furthermore, China’s domestic policy is more important for the country’s economic growth than any policy moves by Trump. However, it will be important to monitor potential exemptions to trade tariffs for the most exposed economies, including Mexico and parts of Central and Eastern Europe.
In that vein, and crucially for active investors, even if trade is squeezed in some emerging markets, others will benefit – outside of South-East Asia, parts of Central America are already benefiting from nearshoring, for example. These trends look set to continue; the risk is that there’s a shock around the scale of protectionism and the size of tariffs.
The path of the dollar
As noted above, the market’s short-term reaction to Trump’s ‘America first’ policy is seen via the continuing strength of the US dollar. A strong US dollar is not helpful for emerging market assets, but it is something investors have been dealing with for a decade now.
Longer term, the path of the US dollar is less certain and likely to be less linear, not least because of the many contradictions in Trump’s policy agenda and parts of his administration that are actively calling for a weaker dollar to boost the domestic manufacturing sector.
Portfolio positioning
The short-term outlook – reflecting growth-friendly policy in the US and continued easing in global liquidity conditions – favours higher carry and higher yielding markets. We are taking a selective approach in FX markets given the uneven impact of tariffs and uncertainty around these. In rates markets, there are still plenty of economies where combination of high real (inflation-adjusted) interest rates and benign inflation outlook means that EM cutting cycles across select markets is likely to continue into 2025, creating a positive outlook for bond prices in these markets into 2025.
1 For more information on investment process, please see Important information section.
India
IndiaPopulation 1.4 billionDate 19 April – 1 June |
High impact |
Background
India’s general election took place in seven phases over April and May, with the results announced on 4 June. In the build up to the election the Electoral Commission of India stated that with some 968 million eligible voters, India’s election will be the largest the world has seen. India’s lower house has 543 elected seats and any party or a coalition needs a minimum of 272 MPs to form a government. While Prime Minister Modi – in power since 2014 – has faced international criticism over his role in stoking division between segments of society, his approval ratings remained very high before the election.
Key parties
National Democratic Alliance (NDA): A centre-right to right-wing conservative alliance led by the Bharatiya Janata Party (BJP) under Prime Minister Narendra Modi. Having won 303 of the 543 seats in the 2019 election, the party said its target was to win at least 370 seats and secure a historic third consecutive term.
Indian National Developmental Inclusive Alliance (INDIA): More than two dozen opposition parties, including the Congress, formed a coalition bloc to take on the BJP at this election.
Our thoughts on election result
Modi’s BJP party surprised the market by not managing – by some margin – to secure a majority, returning India to coalition politics. Modi’s plans to form a coalition government in a National Democratic Alliance with two smaller parties seem likely to succeed, meaning the worst case scenario is likely to be avoided. It’s far too early to determine the impact of this result as we await many important developments in the coming days and weeks. The most obvious signposts to watch out for will be who is appointed to the key ministries and the revised budget, which will be presented in July. An opposition with a much larger voice than before and a government relying on the goodwill of coalition partners means greater checks and balances on all aspects of policymaking. The question will be whether this helps rather than acts as a hindrance to effective policymaking.
For local currency sovereign debt, we expect the market to trade more cautiously until greater clarity is provided on appointments to key ministerial positions, and then the budget. We retain our neutral view on Indian debt. We have become less constructive on the currency (reflected in a neutral view). While the election result has driven up volatility in India’s corporate bond market, we maintain a positive long-term view given strong corporate fundamentals and beneficial structural tailwinds, particularly in the energy transition space.
South Africa
South AfricaPopulation 59.9 millionDate 29 May |
High impact |
Background
The African National Congress (ANC) lost its absolute majority in the country’s seventh democratic election in May – securing just 40.18% of the votes – ending the single-party dominance in the region. Meanwhile, the newly formed uMkhonto weSizwe (MK) performed better than expected, taking the Economic Freedom Fighter’s (EFF’s) position as the third biggest party; and the Democratic Alliance (DA) retained its second position. After losing the majority, the ANC opened talks with other parties to form a Government of National Unity (GNU) – a coalition including the DA and other smaller parties, with President Ramaphosa retaining his position.
Key parties
African National Congress (ANC): The long-ruling party led by Cyril Ramaphosa faced several headwinds going into the election, but still held the largest single voter base. After failing to win an absolute majority, the ANC has led successful talks to form the GNU, as noted above.
Democratic Alliance (DA): The main opposition to the ANC going into the election is led by John Steenhuisen, who sought to capitalise on the ANC’s weaknesses and appeal to moderate voters with a focus on good governance and economic growth. Since the election, the DA has agreed to form the GNU with the ANC, with conditions that it be allowed to secure seats in the cabinet.
uMkhonto weSizwe (MK): Often referred to as the MK Party, the name of this recently formed party means ‘Spear of the Nation’ and has the support of former president Jacob Zuma. After the ANC failed to block the MK from participating in the election, the party amassed votes, making it the third-largest party in the country. MK, the EFF and other smaller parties, are not part of the GNU.
Our thoughts on election result
South African financial markets have been volatile since the election – with the associated dislocation in pricing creating opportunities for active managers. However, the trend has been upward overall, driven by the agreement to form an unprecedented GNU, which prompted a significant recovery as market-unfriendly tail risk scenarios were avoided. The coalition will see the ANC retaining key positions in the cabinet that would allow it to continue rolling out its key policies while sharing power with other parties; for instance, markets welcomed the news that Enoch Godongwana has maintained his position as the finance minister.
The focus now has shifted to the GNU and its ability to implement reforms that are needed to put the economy on a sustainable path. We have a constructive view on the country’s hard currency debt as we expect the Ramaphosa presidency to re-engage with structural reforms and introduce fiscal rules to help restore debt sustainability.
Mexico
MexicoPopulation 127.5 millionDate 2 June |
High impact |
Background
In Mexico, presidents can only serve one six-year term, so the populist Andrés Manuel López Obrador (AMLO) could not seek re-election. While most eyes were on the presidential race, Mexicans also voted for 20,000 local authority posts as all 32 of the country’s states held concurrent ballots for local seats, making this the biggest election in the country’s history. AMLO’s victory in 2018 was the first time a left-leaning politician was elected in Mexico in three decades. His policies have been controversial; attempts to overhaul the national election regulator and proposals around potentially costly changes to minimum wages and state pensions – while unsuccessful – have unsettled markets.
Key parties
Claudia Sheinbaum represents a continuation of AMLO and was backed by his Morena party. There is potential upside on energy policy, given Sheinbaum’s environmental engineering background. In a speech in March, she committed to accelerating the transition to renewables.
Xóchitl Gálvez is Sheinbaum’s closest rival and represents a more market-friendly option. Running under the Strength and Heart for Mexico coalition, she would seek to tackle Mexico’s most pressing issues such as the heavily indebted state-owned oil company Pemex, and pending structural reforms.
Our thoughts on election result
While Claudia Sheinbaum’s victory in the presidential election was largely expected, the scale of her win (securing 59.3% of the vote) took the market by surprise, as did her party’s strong showing in Congress.
The Morena party has secured a ‘super’ (two-thirds) majority in the lower house and just short of this in the Senate (where it should find it relatively easy to get the necessary support of a few senators from other parties). That will allow the party to push through amendments to the constitution. Sheinbaum’s predecessor, Andres Manuel Lopez Obrador (‘AMLO’) presented a number of reforms in February but lacked the necessary majority in Congress. Top of investors’ concerns are:
- Reforms the judiciary, essentially moving to a system where judges are elected. The judiciary has played a key role in preventing some of AMLO’s reforms from going ahead, so this would further weaken checks and balances.
- Reforms to the National Electoral Institute. This has been a target of AMLO, but so far he had been unsuccessful in weakening this independent institution.
- A pension reform, which could significantly raise the fiscal burden of providing much higher pensions.
- A minimum wage reform, ensuring that increases in minimum wages at least keep up with inflation. This would increase the persistence and stickiness of inflation.
This led to a sell-off, particularly in local markets and especially in the Mexican peso. We have moved to a more cautious view on the peso, which we expect to remain under pressure when AMLO’s reform plans get pushed through in September – as is now expected. We remain cautious on the outlook for Mexican sovereign bonds – we already had concerns over a deteriorating fiscal position this year, which will be difficult for the next administration to adjust, and sticky inflation is preventing the central bank (Banxico) from being more aggressive in its rate cuts.
While the election result may drive up volatility in Mexico’s corporate bond market, we maintain a positive long-term view given strong corporate fundamentals and structural tailwinds that benefit both exporters and domestic producers.
High impact
United States (updated)
United StatesPopulation 333.3 million3Date 5 November |
High impact |
Background
The highly anticipated US election turned into an impossible-to-predict race between the Democrats (Kamala Harris) and Republicans (Donald Trump), with most polls pointing to a very close result. In the end, Donald Trump secured victory. Republicans have taken control of the US Senate and – at the time of writing – look set to keep their majority in the House, which would produce a full sweep for the party in Congress.
In the run-up to the election, volatility in fixed income markets centred around the potential implications for tariffs and the US Treasury market (relating to US fiscal policy direction) – the key transmission channels for EM sovereign markets from the US election. Specifically, Trump’s election campaign pointed to the following potential implications:
- Trade: Trump floated a plan to impose a 10% tariff on all imports (vs. current average 3%), aiming to incentivise US domestic production. He also threatened a blanket 60% tariff (or more) on imports from China. Even if Canada and Mexico are exempt under the United States-Mexico-Canada Agreement, this would be a major escalation of US trade protectionism, increasing tensions with major trade partners. India and Indonesia would likely be net beneficiaries relative to the rest of Asia, particularly China.
- Geopolitics: Trump threatened to withdraw all military and financial support for Ukraine. He stated that he could push for Ukraine to negotiate an end to the war with Russia, implying it should accept the loss of land currently under Russian occupation.
Our thoughts on the election result
Ultimately, both the current Democrat presidency and Trump have had a mixed market impact in their respective terms, and our team has navigated the uncertainty through a focus on bottom-up best ideas that complement the overall top-down view the team has through the market cycle. We will continue to adopt this approach.1
The short-term reaction to the election result has seen market participants price key themes/outcomes related to Trump’s expected policy path:
- An anticipated rise in growth and inflation, led by the US economy, is evidenced by rising yields in the US Treasury market – relating to higher fiscal spending and deregulation – and the US dollar strengthening. This has boosted high-yielding asset markets (pushing down credit spreads in riskier parts of the bond market).
- Concerns around trade tariffs have caused some European and Asian markets – primarily manufacturing-heavy economies – to underperform.
- An expected shift in gear on the geopolitical front has boosted Ukrainian and Israeli bond prices, reflecting the view that Trump will try to expedite peace deals with the respective regimes.
On tariffs, markets seem to be in wait-and-see mode. While Trump’s rhetoric on tariffs has been tough and alarming, what happens in practice is yet to be seen, making it difficult to gauge – and price – the size and scope of eventual tariffs. That the market reaction has not been stronger makes sense in the context of Trump’s previous term in office: what he threatened differed significantly from his eventual policy, including the trade relationship with China.
It is also important to note that Biden’s administration upheld many of Trump’s trade policies, meaning markets and economies have had eight years to adjust to a more protectionist US regime and markets have largely positioned for an ongoing tense relationship between China and the US. Broadly, almost a decade of US protectionism and increased polarisation of the global economy is not a new theme and global supply chains have already adjusted. Furthermore, China’s domestic policy is more important for the country’s economic growth than any policy moves by Trump. However, it will be important to monitor potential exemptions to trade tariffs for the most exposed economies, including Mexico and parts of Central and Eastern Europe.
In that vein, and crucially for active investors, even if trade is squeezed in some emerging markets, others will benefit – outside of South-East Asia, parts of Central America are already benefiting from nearshoring, for example. These trends look set to continue; the risk is that there’s a shock around the scale of protectionism and the size of tariffs.
The path of the dollar
As noted above, the market’s short-term reaction to Trump’s ‘America first’ policy is seen via the continuing strength of the US dollar. A strong US dollar is not helpful for emerging market assets, but it is something investors have been dealing with for a decade now.
Longer term, the path of the US dollar is less certain and likely to be less linear, not least because of the many contradictions in Trump’s policy agenda and parts of his administration that are actively calling for a weaker dollar to boost the domestic manufacturing sector.
Portfolio positioning
The short-term outlook – reflecting growth-friendly policy in the US and continued easing in global liquidity conditions – favours higher carry and higher yielding markets. We are taking a selective approach in FX markets given the uneven impact of tariffs and uncertainty around these. In rates markets, there are still plenty of economies where combination of high real (inflation-adjusted) interest rates and benign inflation outlook means that EM cutting cycles across select markets is likely to continue into 2025, creating a positive outlook for bond prices in these markets into 2025.
1 For more information on investment process, please see Important information section.
India
IndiaPopulation 1.4 billionDate 19 April – 1 June |
High impact |
Background
India’s general election took place in seven phases over April and May, with the results announced on 4 June. In the build up to the election the Electoral Commission of India stated that with some 968 million eligible voters, India’s election will be the largest the world has seen. India’s lower house has 543 elected seats and any party or a coalition needs a minimum of 272 MPs to form a government. While Prime Minister Modi – in power since 2014 – has faced international criticism over his role in stoking division between segments of society, his approval ratings remained very high before the election.
Key parties
National Democratic Alliance (NDA): A centre-right to right-wing conservative alliance led by the Bharatiya Janata Party (BJP) under Prime Minister Narendra Modi. Having won 303 of the 543 seats in the 2019 election, the party said its target was to win at least 370 seats and secure a historic third consecutive term.
Indian National Developmental Inclusive Alliance (INDIA): More than two dozen opposition parties, including the Congress, formed a coalition bloc to take on the BJP at this election.
Our thoughts on election result
Modi’s BJP party surprised the market by not managing – by some margin – to secure a majority, returning India to coalition politics. Modi’s plans to form a coalition government in a National Democratic Alliance with two smaller parties seem likely to succeed, meaning the worst case scenario is likely to be avoided. It’s far too early to determine the impact of this result as we await many important developments in the coming days and weeks. The most obvious signposts to watch out for will be who is appointed to the key ministries and the revised budget, which will be presented in July. An opposition with a much larger voice than before and a government relying on the goodwill of coalition partners means greater checks and balances on all aspects of policymaking. The question will be whether this helps rather than acts as a hindrance to effective policymaking.
For local currency sovereign debt, we expect the market to trade more cautiously until greater clarity is provided on appointments to key ministerial positions, and then the budget. We retain our neutral view on Indian debt. We have become less constructive on the currency (reflected in a neutral view). While the election result has driven up volatility in India’s corporate bond market, we maintain a positive long-term view given strong corporate fundamentals and beneficial structural tailwinds, particularly in the energy transition space.
South Africa
South AfricaPopulation 59.9 millionDate 29 May |
High impact |
Background
The African National Congress (ANC) lost its absolute majority in the country’s seventh democratic election in May – securing just 40.18% of the votes – ending the single-party dominance in the region. Meanwhile, the newly formed uMkhonto weSizwe (MK) performed better than expected, taking the Economic Freedom Fighter’s (EFF’s) position as the third biggest party; and the Democratic Alliance (DA) retained its second position. After losing the majority, the ANC opened talks with other parties to form a Government of National Unity (GNU) – a coalition including the DA and other smaller parties, with President Ramaphosa retaining his position.
Key parties
African National Congress (ANC): The long-ruling party led by Cyril Ramaphosa faced several headwinds going into the election, but still held the largest single voter base. After failing to win an absolute majority, the ANC has led successful talks to form the GNU, as noted above.
Democratic Alliance (DA): The main opposition to the ANC going into the election is led by John Steenhuisen, who sought to capitalise on the ANC’s weaknesses and appeal to moderate voters with a focus on good governance and economic growth. Since the election, the DA has agreed to form the GNU with the ANC, with conditions that it be allowed to secure seats in the cabinet.
uMkhonto weSizwe (MK): Often referred to as the MK Party, the name of this recently formed party means ‘Spear of the Nation’ and has the support of former president Jacob Zuma. After the ANC failed to block the MK from participating in the election, the party amassed votes, making it the third-largest party in the country. MK, the EFF and other smaller parties, are not part of the GNU.
Our thoughts on election result
South African financial markets have been volatile since the election – with the associated dislocation in pricing creating opportunities for active managers. However, the trend has been upward overall, driven by the agreement to form an unprecedented GNU, which prompted a significant recovery as market-unfriendly tail risk scenarios were avoided. The coalition will see the ANC retaining key positions in the cabinet that would allow it to continue rolling out its key policies while sharing power with other parties; for instance, markets welcomed the news that Enoch Godongwana has maintained his position as the finance minister.
The focus now has shifted to the GNU and its ability to implement reforms that are needed to put the economy on a sustainable path. We have a constructive view on the country’s hard currency debt as we expect the Ramaphosa presidency to re-engage with structural reforms and introduce fiscal rules to help restore debt sustainability.
Mexico
MexicoPopulation 127.5 millionDate 2 June |
High impact |
Background
In Mexico, presidents can only serve one six-year term, so the populist Andrés Manuel López Obrador (AMLO) could not seek re-election. While most eyes were on the presidential race, Mexicans also voted for 20,000 local authority posts as all 32 of the country’s states held concurrent ballots for local seats, making this the biggest election in the country’s history. AMLO’s victory in 2018 was the first time a left-leaning politician was elected in Mexico in three decades. His policies have been controversial; attempts to overhaul the national election regulator and proposals around potentially costly changes to minimum wages and state pensions – while unsuccessful – have unsettled markets.
Key parties
Claudia Sheinbaum represents a continuation of AMLO and was backed by his Morena party. There is potential upside on energy policy, given Sheinbaum’s environmental engineering background. In a speech in March, she committed to accelerating the transition to renewables.
Xóchitl Gálvez is Sheinbaum’s closest rival and represents a more market-friendly option. Running under the Strength and Heart for Mexico coalition, she would seek to tackle Mexico’s most pressing issues such as the heavily indebted state-owned oil company Pemex, and pending structural reforms.
Our thoughts on election result
While Claudia Sheinbaum’s victory in the presidential election was largely expected, the scale of her win (securing 59.3% of the vote) took the market by surprise, as did her party’s strong showing in Congress.
The Morena party has secured a ‘super’ (two-thirds) majority in the lower house and just short of this in the Senate (where it should find it relatively easy to get the necessary support of a few senators from other parties). That will allow the party to push through amendments to the constitution. Sheinbaum’s predecessor, Andres Manuel Lopez Obrador (‘AMLO’) presented a number of reforms in February but lacked the necessary majority in Congress. Top of investors’ concerns are:
- Reforms the judiciary, essentially moving to a system where judges are elected. The judiciary has played a key role in preventing some of AMLO’s reforms from going ahead, so this would further weaken checks and balances.
- Reforms to the National Electoral Institute. This has been a target of AMLO, but so far he had been unsuccessful in weakening this independent institution.
- A pension reform, which could significantly raise the fiscal burden of providing much higher pensions.
- A minimum wage reform, ensuring that increases in minimum wages at least keep up with inflation. This would increase the persistence and stickiness of inflation.
This led to a sell-off, particularly in local markets and especially in the Mexican peso. We have moved to a more cautious view on the peso, which we expect to remain under pressure when AMLO’s reform plans get pushed through in September – as is now expected. We remain cautious on the outlook for Mexican sovereign bonds – we already had concerns over a deteriorating fiscal position this year, which will be difficult for the next administration to adjust, and sticky inflation is preventing the central bank (Banxico) from being more aggressive in its rate cuts.
While the election result may drive up volatility in Mexico’s corporate bond market, we maintain a positive long-term view given strong corporate fundamentals and structural tailwinds that benefit both exporters and domestic producers.
Medium impact
Dominican Republic
Dominican RepublicPopulation 11.2 millionDate 19 May |
Medium impact |
Background
Abinader’s incumbency and his relatively high approval ratings offer some hope for stability. The campaign will likely focus on the economic growth story after relatively weak numbers in 2023 and, in our opinion, the electoral calendar will likely reinforce the government’s willingness to increase capital expenditures into next year. However, there is a complex web of risks that will require careful navigation, including ongoing tensions with neighbouring Haiti.
Key parties
Partido Revolucionario Moderno (PRM): Led by Luis Abinader, who is running for president for the third time. In 2016, he placed second with 35% of the vote, and in 2020, he won with 52.5%5, breaking 16 years in power for the PLD.
Partido de la Liberación Dominicana (PLD): Led by Abel Martínez Durán, who is running for the presidency for the first time and has presented a tech-focused security plan.
Fuerza del Pueblo (FP): Led by Leonel Fernández, who served three presidential terms in the 1990s and 2000s. He has made wealth distribution, social justice and infrastructure part of his platform.
Our thoughts on election result
The Dominican Republic’s election result - a win by incumbent Abinader, was in line with expectations, paving the way for fiscal reforms. This is positive for the country’s economic and debt sustainability outlook, in our view.
5 Source: Americas Quarterly.
Romania
RomaniaPopulation 19.0 millionDate 24 November (Presidential);
|
Medium impact |
Background
Romania’s 2024 elections take place in an environment of uncertainty as populist promises of pension hikes clash with European Union (EU) fiscal demands, threatening economic stability. The country will undergo local, EU, parliamentary and presidential elections this year amidst a fragmented political landscape. Rising right-wing and green forces are challenging traditional parties, which could lead to unstable coalitions. Unclear plans for funding pension reforms add another layer of uncertainty. President Klaus Iohannis is not eligible for another candidacy; therefore, his party (PNL) needs to find another suitable candidate.
Key parties
The following parties are both part of the governing coalition:
National Liberal Party (PNL): The party will likely field former Prime Minister Florin Cîțu. PNL advocates for continued EU integration and market reforms, but faces criticism for rising living costs.
Social Democratic Party (PSD): The party is traditionally strong in rural areas. Marcel Ciolacu, current prime minister, or another high-profile member might be its candidate. The party promises social spending increases and criticises austerity measures.
Our thoughts
The key election is the parliamentary ballot held towards the end of the year. Overall, we expect the incumbent governing coalition of liberals and socialists to win enough seats to continue their partnership. Given the coalition’s pro-EU stance, a victory for the incumbent would be viewed as a relatively positive outcome by the market. However, much would depend on the extent to which both parties commit to post election fiscal consolidation, which is vital to restore the sustainability of the fiscal trajectory after a prolonged period of wide deficits.
Given a weak fiscal backdrop we think cautious positioning in Romanian debt is prudent. If we can get some comfort that there will be a prudent policy mix ahead of the elections, we would consider adding exposure, though the inflation profile and valuations will be key.
Sri Lanka
Sri LankaPopulation 22.2 millionDate 21 September (Presidential);
|
Medium impact |
Background
This is Sri Lanka’s first presidential election since an economic crisis dramatically unfolded in 2022 (as outlined here), which included a sovereign default and led to then-President Gotabaya Rajapaksa fleeing the country.
Since those tumultuous times, Sri Lanka’s government and central bank have done a commendable job at stabilising the economy, underpinned by an IMF programme that has put the country’s macro-economic policy on a more orthodox path. Consequently, there has been a significant improvement in Sri Lanka’s macro variables, with FX reserves rebuilt to much more sustainable levels, inflation at low single digits, and a significant narrowing in the fiscal deficit. Debt re-negotiations with local and international creditors have progressed well, with local debt restructuring completed and agreements are in place with bilateral creditors on external debt. However, the restructuring of its international US dollar bonds is not yet completed; an Agreement in Principle on a bond framework is in place, but there is no formal restructuring agreement. Given this backdrop, the importance of this election cannot be understated.
Key candidates (presidential election)
Ranil Wickremesinghe – incumbent president. Leader to the United National Party, Wickremesinghe was appointed caretaker president in 2022, after stepping down as prime minister. Since then, he has overseen the IMF programme and debt restructuring. Considered the most market friendly of the candidates as under him the IMF programme and debt restructuring renegotiations would continue on their pre-election path.
Sajith Premadasa – the leader of the main opposition party, the Samagi Jana Balawegaya (SJB). Premadasa is the son of Ranasinghe Premadasa, who was assassinated when serving as president in 1993. Considered a market-friendly candidate although has suggested renegotiating some elements of the IMF programme.
Anura Kumara Dissanayake (AKD) – leader of the Janatha Vimukthi Peramuna (JVP), which is part of the National People’s Power (NPP) coalition. AKD’s profile has risen markedly since the crisis in 2022 (in the 2020 Parliamentary elections, the NPP won just three out of 225 seats). The prospect of an AKD win was the most concerning for markets, given the manifesto calling for tax policies that are inconsistent with the existing IMF programme and a lack of support for the bond framework which has been agreed in principle with bondholders.
Our thoughts on the election result
AKD won the vote in the second round of September’s presidential election. The country’s international US dollar bonds fell sharply on the Monday following the news but had largely recovered by the end of September, and by October the bonds were rallying following constructive discussions between the Ministry of Finance and the IMF on the terms of its debt restructuring programme.
One of AKD’s first acts as president was to dissolve parliament, calling for parliamentary elections on 14 November; his party had only three seats in government at this time, making it very difficult to form a cabinet. The result of the parliamentary elections led to the NPP securing 159 out of 225 seats, granting the party a solid majority and thus a significantly stronger platform to pursue reforms.
Although at the time of writing AKD has yet to clarify his plans for the IMF debt restructuring programme and tax policies, talks with the IMF are progressing positively. This has eased some market concerns regarding political risk, but we remain cautious around the new government’s compliance with the IMF programme, particularly after plans for privatising Sri Lankan Airlines were cancelled (a key IMF demand when granting the loan) and the pledge to double the income tax threshold. Given this uncertainty, we retain a cautious view on the country’s international US dollar bonds at these price levels. However, we acknowledge that longer-term Sri Lanka has significant potential, with solid institutional foundations and a young and well-educated population. Key developments to watch over the coming weeks will be whether the IMF reaches a Staff Level Agreement with the Sri Lankan government on the latest tranche of the IMF programme, as well as details of the completed bond restructuring.
Low impact
Venezuela
VenezuelaPopulation 28.3 millionDate 28 July |
Low impact |
Background
Venezuela will head to the polls on 28 July. President Nicolás Maduro, in power since the death of his predecessor Hugo Chávez in 2013, will seek another six-year term. His main opponent, María Corina Machado, has been barred from running. The country’s electoral commission has invited international observers to monitor the vote.
Key parties
United Socialist Party of Venezuela (PSUV): The dominant party for the past two decades, led by President Nicolás Maduro. The party controls most elected offices and government institutions. PSUV’s platform emphasises ‘Chavismo,’ a socialist ideology based on the legacy of Maduro’s predecessor.
The opposition in Venezuela is characterised by its fragmentation and internal divisions. However, two main coalitions have emerged: Unitary Platform, which represents a larger umbrella coalition of roughly 20 opposition parties, including traditional centre-right parties; and G4 Alliance, a smaller coalition of four major parties, known for their more critical stance against Maduro. This includes Maria Corina Machado, an outspoken critic of Maduro and winner of the opposition’s primary in October 2023, representing Voluntad Popular.
Our thoughts on election result
Incumbent ruler Maduro was declared the winner of Venezuela’s election, with well-reported and credible allegations of fraud. This prompted heavy criticism from the US administration and large-scale protests within Venezuela. Bonds had rallied early in the month on hopes for a move towards a change in regime coming out of the election, but as these hopes were dashed, markets quickly priced out this expectation.
Uruguay
UruguayPopulation 3.4 millionDate 27 October (first round); 24 November (runoff) |
Low impact |
Background
Prior to the election, the then incumbent President Luis Lacalle Pou, who won in 2019, was unable to run again as the constitution bars a president from immediate re-election. Partido Nacional selected Álvaro Delgado, a former senator and Cabinet chief under Lacalle Pou, to run in his place. In general, Uruguayan elections are not huge political pivots because both centre-right and centre-left parties are typically predictable.
Key parties
Frente Amplio: The main opposition party, a centre-left coalition known for its social welfare programmes and progressive policies.
Partido Nacional: The governing party before this election, led by Luis Lacalle Pou; centre-right, with a focus on economic stability and security.
Colorado Party: Historically, the dominant party in Uruguay, but with declining support in recent years. The party leans centre-right, emphasising traditional values and fiscal responsibility.
Our thoughts
As broadly expected, the Frente Amplio coalition won the election by a close margin, securing 49.8% of votes against the 45.9% of votes for the Partido Nacional candidate. This was taken relatively constructively by market participants, especially as the electorate also rejected a controversial plebiscite that would have undone social security reforms. Yamandú Orsi, leader of the Frente Ampilo party, has emphasised plans to increase social spending while avoiding raising taxes, to crackdown on crime, and to lower trade tariffs with countries such as China.
We retain a constructive view on the country’s local currency debt market as the strong structural story is unlikely to be derailed by this result.
Tunisia
TunisiaPopulation 12.4 millionDate 24 November |
Low impact |
Background
This marks the first presidential elections since President Saïed’s self-coup. Since the last presidential vote in 2019 that brought Saïed to power as a political independent promising change, he dissolved parliament – sending in tanks to do so – and ruled by decree. He introduced a new constitution in 2022 that expanded presidential powers so he could serve as head of state and government.
Key parties
President Saïed was unlikely to face much competition as he remains very popular domestically and has effectively side-lined most opposition parties, who boycotted the constitutional referendum and subsequent parliamentary elections, resulting in very low turnouts.
Our thoughts on election result
President Saïed brought forward the election date to 6 October and claimed a landslide victory following the arrest and imprisonment of political rivals. The move attracted widespread criticism on the international stage.
From a policy perspective we don’t envisage a large change as likely, given the consistent message from the government on increasing self-reliance. There is some possibility of thawing relations with the European Union and IMF once elections are over. From an asset class perspective, the election is unlikely to be the main driver of returns although we would look closely for any change in stance from the president towards the European Union and IMF.
Ghana
GhanaPopulation 33.5 millionDate 7 December |
Low impact |
Background
This will be the fifth presidential election since Ghana returned to democratic multi-party politics in 1992. One of the worst economic crises in a generation, overseen by the current administration, makes this election particularly interesting. President Nana Akufo-Addo steps down after completing his two term limit.
Key parties
New Patriotic Party (NPP), is the incumbent party, led by Mahamudu Bawumia, who is the former Deputy Governor of Ghana’s central bank7. National Democratic Congress (NDC), led by John Mahama, Ghana’s president from 2012 to 2017. He lost close elections to Akufo-Addo in 2016 and 20207.
Our thoughts
Despite being a tightly contested election, the changes from an economic policy perspective are likely to be limited. They are also unlikely to have much impact on the current agreement with the IMF as former President Mahama is a known quantity. From an asset class perspective, the election is unlikely to be the main driver of asset class returns in the short term with the conclusion of the external debt restructuring likely to be more important.
7 Source: Africa Center for Strategic Studies.
Elections already held
United States (updated)
United StatesPopulation 333.3 million3Date 5 November |
High impact |
Background
The highly anticipated US election turned into an impossible-to-predict race between the Democrats (Kamala Harris) and Republicans (Donald Trump), with most polls pointing to a very close result. In the end, Donald Trump secured victory. Republicans have taken control of the US Senate and – at the time of writing – look set to keep their majority in the House, which would produce a full sweep for the party in Congress.
In the run-up to the election, volatility in fixed income markets centred around the potential implications for tariffs and the US Treasury market (relating to US fiscal policy direction) – the key transmission channels for EM sovereign markets from the US election. Specifically, Trump’s election campaign pointed to the following potential implications:
- Trade: Trump floated a plan to impose a 10% tariff on all imports (vs. current average 3%), aiming to incentivise US domestic production. He also threatened a blanket 60% tariff (or more) on imports from China. Even if Canada and Mexico are exempt under the United States-Mexico-Canada Agreement, this would be a major escalation of US trade protectionism, increasing tensions with major trade partners. India and Indonesia would likely be net beneficiaries relative to the rest of Asia, particularly China.
- Geopolitics: Trump threatened to withdraw all military and financial support for Ukraine. He stated that he could push for Ukraine to negotiate an end to the war with Russia, implying it should accept the loss of land currently under Russian occupation.
Our thoughts on the election result
Ultimately, both the current Democrat presidency and Trump have had a mixed market impact in their respective terms, and our team has navigated the uncertainty through a focus on bottom-up best ideas that complement the overall top-down view the team has through the market cycle. We will continue to adopt this approach.1
The short-term reaction to the election result has seen market participants price key themes/outcomes related to Trump’s expected policy path:
- An anticipated rise in growth and inflation, led by the US economy, is evidenced by rising yields in the US Treasury market – relating to higher fiscal spending and deregulation – and the US dollar strengthening. This has boosted high-yielding asset markets (pushing down credit spreads in riskier parts of the bond market).
- Concerns around trade tariffs have caused some European and Asian markets – primarily manufacturing-heavy economies – to underperform.
- An expected shift in gear on the geopolitical front has boosted Ukrainian and Israeli bond prices, reflecting the view that Trump will try to expedite peace deals with the respective regimes.
On tariffs, markets seem to be in wait-and-see mode. While Trump’s rhetoric on tariffs has been tough and alarming, what happens in practice is yet to be seen, making it difficult to gauge – and price – the size and scope of eventual tariffs. That the market reaction has not been stronger makes sense in the context of Trump’s previous term in office: what he threatened differed significantly from his eventual policy, including the trade relationship with China.
It is also important to note that Biden’s administration upheld many of Trump’s trade policies, meaning markets and economies have had eight years to adjust to a more protectionist US regime and markets have largely positioned for an ongoing tense relationship between China and the US. Broadly, almost a decade of US protectionism and increased polarisation of the global economy is not a new theme and global supply chains have already adjusted. Furthermore, China’s domestic policy is more important for the country’s economic growth than any policy moves by Trump. However, it will be important to monitor potential exemptions to trade tariffs for the most exposed economies, including Mexico and parts of Central and Eastern Europe.
In that vein, and crucially for active investors, even if trade is squeezed in some emerging markets, others will benefit – outside of South-East Asia, parts of Central America are already benefiting from nearshoring, for example. These trends look set to continue; the risk is that there’s a shock around the scale of protectionism and the size of tariffs.
The path of the dollar
As noted above, the market’s short-term reaction to Trump’s ‘America first’ policy is seen via the continuing strength of the US dollar. A strong US dollar is not helpful for emerging market assets, but it is something investors have been dealing with for a decade now.
Longer term, the path of the US dollar is less certain and likely to be less linear, not least because of the many contradictions in Trump’s policy agenda and parts of his administration that are actively calling for a weaker dollar to boost the domestic manufacturing sector.
Portfolio positioning
The short-term outlook – reflecting growth-friendly policy in the US and continued easing in global liquidity conditions – favours higher carry and higher yielding markets. We are taking a selective approach in FX markets given the uneven impact of tariffs and uncertainty around these. In rates markets, there are still plenty of economies where combination of high real (inflation-adjusted) interest rates and benign inflation outlook means that EM cutting cycles across select markets is likely to continue into 2025, creating a positive outlook for bond prices in these markets into 2025.
1 For more information on investment process, please see Important information section.
South Africa
South AfricaPopulation 59.9 millionDate 29 May |
High impact |
Background
The African National Congress (ANC) lost its absolute majority in the country’s seventh democratic election in May – securing just 40.18% of the votes – ending the single-party dominance in the region. Meanwhile, the newly formed uMkhonto weSizwe (MK) performed better than expected, taking the Economic Freedom Fighter’s (EFF’s) position as the third biggest party; and the Democratic Alliance (DA) retained its second position. After losing the majority, the ANC opened talks with other parties to form a Government of National Unity (GNU) – a coalition including the DA and other smaller parties, with President Ramaphosa retaining his position.
Key parties
African National Congress (ANC): The long-ruling party led by Cyril Ramaphosa faced several headwinds going into the election, but still held the largest single voter base. After failing to win an absolute majority, the ANC has led successful talks to form the GNU, as noted above.
Democratic Alliance (DA): The main opposition to the ANC going into the election is led by John Steenhuisen, who sought to capitalise on the ANC’s weaknesses and appeal to moderate voters with a focus on good governance and economic growth. Since the election, the DA has agreed to form the GNU with the ANC, with conditions that it be allowed to secure seats in the cabinet.
uMkhonto weSizwe (MK): Often referred to as the MK Party, the name of this recently formed party means ‘Spear of the Nation’ and has the support of former president Jacob Zuma. After the ANC failed to block the MK from participating in the election, the party amassed votes, making it the third-largest party in the country. MK, the EFF and other smaller parties, are not part of the GNU.
Our thoughts on election result
South African financial markets have been volatile since the election – with the associated dislocation in pricing creating opportunities for active managers. However, the trend has been upward overall, driven by the agreement to form an unprecedented GNU, which prompted a significant recovery as market-unfriendly tail risk scenarios were avoided. The coalition will see the ANC retaining key positions in the cabinet that would allow it to continue rolling out its key policies while sharing power with other parties; for instance, markets welcomed the news that Enoch Godongwana has maintained his position as the finance minister.
The focus now has shifted to the GNU and its ability to implement reforms that are needed to put the economy on a sustainable path. We have a constructive view on the country’s hard currency debt as we expect the Ramaphosa presidency to re-engage with structural reforms and introduce fiscal rules to help restore debt sustainability.
India
IndiaPopulation 1.4 billionDate 19 April – 1 June |
High impact |
Background
India’s general election took place in seven phases over April and May, with the results announced on 4 June. In the build up to the election the Electoral Commission of India stated that with some 968 million eligible voters, India’s election will be the largest the world has seen. India’s lower house has 543 elected seats and any party or a coalition needs a minimum of 272 MPs to form a government. While Prime Minister Modi – in power since 2014 – has faced international criticism over his role in stoking division between segments of society, his approval ratings remained very high before the election.
Key parties
National Democratic Alliance (NDA): A centre-right to right-wing conservative alliance led by the Bharatiya Janata Party (BJP) under Prime Minister Narendra Modi. Having won 303 of the 543 seats in the 2019 election, the party said its target was to win at least 370 seats and secure a historic third consecutive term.
Indian National Developmental Inclusive Alliance (INDIA): More than two dozen opposition parties, including the Congress, formed a coalition bloc to take on the BJP at this election.
Our thoughts on election result
Modi’s BJP party surprised the market by not managing – by some margin – to secure a majority, returning India to coalition politics. Modi’s plans to form a coalition government in a National Democratic Alliance with two smaller parties seem likely to succeed, meaning the worst case scenario is likely to be avoided. It’s far too early to determine the impact of this result as we await many important developments in the coming days and weeks. The most obvious signposts to watch out for will be who is appointed to the key ministries and the revised budget, which will be presented in July. An opposition with a much larger voice than before and a government relying on the goodwill of coalition partners means greater checks and balances on all aspects of policymaking. The question will be whether this helps rather than acts as a hindrance to effective policymaking.
For local currency sovereign debt, we expect the market to trade more cautiously until greater clarity is provided on appointments to key ministerial positions, and then the budget. We retain our neutral view on Indian debt. We have become less constructive on the currency (reflected in a neutral view). While the election result has driven up volatility in India’s corporate bond market, we maintain a positive long-term view given strong corporate fundamentals and beneficial structural tailwinds, particularly in the energy transition space.
Mexico
MexicoPopulation 127.5 millionDate 2 June |
High impact |
Background
In Mexico, presidents can only serve one six-year term, so the populist Andrés Manuel López Obrador (AMLO) could not seek re-election. While most eyes were on the presidential race, Mexicans also voted for 20,000 local authority posts as all 32 of the country’s states held concurrent ballots for local seats, making this the biggest election in the country’s history. AMLO’s victory in 2018 was the first time a left-leaning politician was elected in Mexico in three decades. His policies have been controversial; attempts to overhaul the national election regulator and proposals around potentially costly changes to minimum wages and state pensions – while unsuccessful – have unsettled markets.
Key parties
Claudia Sheinbaum represents a continuation of AMLO and was backed by his Morena party. There is potential upside on energy policy, given Sheinbaum’s environmental engineering background. In a speech in March, she committed to accelerating the transition to renewables.
Xóchitl Gálvez is Sheinbaum’s closest rival and represents a more market-friendly option. Running under the Strength and Heart for Mexico coalition, she would seek to tackle Mexico’s most pressing issues such as the heavily indebted state-owned oil company Pemex, and pending structural reforms.
Our thoughts on election result
While Claudia Sheinbaum’s victory in the presidential election was largely expected, the scale of her win (securing 59.3% of the vote) took the market by surprise, as did her party’s strong showing in Congress.
The Morena party has secured a ‘super’ (two-thirds) majority in the lower house and just short of this in the Senate (where it should find it relatively easy to get the necessary support of a few senators from other parties). That will allow the party to push through amendments to the constitution. Sheinbaum’s predecessor, Andres Manuel Lopez Obrador (‘AMLO’) presented a number of reforms in February but lacked the necessary majority in Congress. Top of investors’ concerns are:
- Reforms the judiciary, essentially moving to a system where judges are elected. The judiciary has played a key role in preventing some of AMLO’s reforms from going ahead, so this would further weaken checks and balances.
- Reforms to the National Electoral Institute. This has been a target of AMLO, but so far he had been unsuccessful in weakening this independent institution.
- A pension reform, which could significantly raise the fiscal burden of providing much higher pensions.
- A minimum wage reform, ensuring that increases in minimum wages at least keep up with inflation. This would increase the persistence and stickiness of inflation.
This led to a sell-off, particularly in local markets and especially in the Mexican peso. We have moved to a more cautious view on the peso, which we expect to remain under pressure when AMLO’s reform plans get pushed through in September – as is now expected. We remain cautious on the outlook for Mexican sovereign bonds – we already had concerns over a deteriorating fiscal position this year, which will be difficult for the next administration to adjust, and sticky inflation is preventing the central bank (Banxico) from being more aggressive in its rate cuts.
While the election result may drive up volatility in Mexico’s corporate bond market, we maintain a positive long-term view given strong corporate fundamentals and structural tailwinds that benefit both exporters and domestic producers.
Panama
Panama
Population 4.4 million
Date 5 May
José Raúl Mulino won what was one of the more open and uncertain elections in Latin America, though the result was in line with polls. Mulino was ex-President Martinelli’s VP candidate before the Supreme Court barred Martinelli from running, due to his conviction on money laundering. Even though Mulino’s platform hasn’t been very clear, he is expected to run a relatively business-friendly administration. However, key will be his willingness and ability to push for a much-needed fiscal reform. His commitment to fiscal rectitude is not quite clear yet and he will lack strong backing from Congress. His party only secured 14 seats in the legislative, out of a total of 71. President-elect Mulino has his work cut out to address the deteriorating fiscal situation and widespread anti-mining sentiment amongst the population. We have a cautious view on the country’s debt, which has recently been downgraded to high yield by Fitch.
South Korea
South Korea
Population 51.6 million
Date 10 April
South Korea’s opposition scored a large – and expected – victory in the parliamentary election, denting the authority of President Yoon Suk Yeol and his conservative party. We do not expect the result to have a significant impact on Korean debt given its similarity to the previous election result.
Turkey
Turkey
Population 85.0 million
Date 31 March (local elections)
Turkey’s main opposition party – CHP – won the mayoral elections for Istanbul and Ankara, as well as a number of other cities. Had President Recep Tayyip Erdogan’s AKP party prevailed, he could have pursued another constitutional reform to extend his presidency beyond 2028. This is now unlikely. This was the first nationwide defeat suffered by Erdogan since becoming prime minister in 2003, as discussed here. Istanbul mayor Ekrem Imamoglu and Ankara mayor Mansur Yavas are now seen as potential candidates to run for the presidency in 2028. Following the election, there has been significant demand for the lira by local and offshore investors, allowing the central bank to start rebuilding its US dollar reserves. Credit fundamentals in Turkey are improving, with increased signs of a long-term commitment to tighter monetary policy.
Senegal
Senegal
Population 17.3 million
Date 24 March
Senegal held its delayed elections on 24 March after opposition leader Ousmane Sonko was released from prison, along with key ally Bassirou Diomaye Faye. After he was disqualified from contesting the election, Sonko endorsed Faye to replace him on the ballot. Incumbent Macky Sall did not stand for re-election. Faye emerged victorious, becoming Africa’s youngest leader. Investors had initially reacted negatively to both the delay and policy risks under a Faye government. However, the market is becoming increasingly more comfortable with the view that policy direction is likely to focus on issues such as governance and tax compliance rather than any policies that could deter foreign investment.
Indonesia
Indonesia
Population 275.5 million
Date 14 February
Indonesian Defence Minister Prabowo Subianto declared victory in the first round in February’s presidential election and will replace the popular Joko Widodo, who must step down after two terms. Short term, markets cheered Prabowo winning in the first round, but we think the longer-term outlook depends on the policies he pushes through, which could weigh on the fiscal. We have a neutral view on FX and a cautious view on duration given how well bonds have already performed and we see risks to fiscal policy which are not well priced in by the market.
Pakistan
Pakistan
Population 235.8 million
Date 8 February
The Pakistan Muslim League-Nawaz (PMLN) will be backed by the Pakistan Peoples Party (PPP) in a new administration, despite both parties winning fewer seats than candidates backed by jailed former Prime Minister Imran Khan’s PTI party. Shehbaz Sharif has been elected as the country’s prime minister for a second term. The result meant Pakistan could focus on completing the IMF Stand-by Arrangement programme and is now in a good place to negotiate a successor Extended Fund Facility programme. We remain constructive on the country’s hard currency bonds.
El Salvador
El Salvador
Population 6.3 million
Date 4 February & 3 March
President Bukele won re-election handily, as expected. By itself it was not a market mover, but the market will wait for any signal that the administration is getting closer to an agreement with the IMF, which would be the best result for the market.
Taiwan
Taiwan
Population 23.4 million8
Date 13 January
The Democratic Progressive Party winning the presidential election was deemed as slightly negative given its more pro-US/anti-China stance compared to opposition parties, by the market. However, we think the real ramifications are negligible given no party is pushing for independence or re-unification, and hence the status quo was likely regardless of the outcome.
8 Source: Statista, using the latest statistical figure for 2023 published by the Department of Household Registration of Taiwan in January 2024.
Egypt
Egypt
Population 111.0 million
Date 18 December
President Sisi won re-election comfortably, as expected. Post the election, the authorities have successfully re-engaged with the IMF and moved on the exchange rate. This was helped by a large UAE-funded property deal, which provided significant short-term external support. This also shows that postelection the focus will now shift back to economic sustainability and to moving out of the economic distress the country found itself in over the last 24 months.
Other elections
Other elections
Other elections
Given the lack of democratic representation in the following countries, the results either have been or are likely to be heavy landslide victories in favour of the incumbent.
- Bangladesh: Election took place in January, with the ruling Awami League led by Prime Minister Sheikh Hasina declared the winner. The opposition boycotted the ballot.
- Belarus: President Alexander Lukashenko has been in power in Belarus since 1994, making him the longest-serving European president currently in office.
- Russia: President Vladimir Putin secured a new six-year term that will enable him to overtake Stalin and become Russia’s longest-serving leader in more than 200 years.
- Rwanda: President Paul Kagame will seek to extend his three decades in control of the East African country in July. In 2017, he won 99% of the votes.
General Risks. The value of investments, and any income generated from them, can fall as well as rise. Where charges are taken from capital, this may constrain future growth. Past performance is not a reliable indicator of future results. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Investment objectives and performance targets are subject to change and may not necessarily be achieved, losses may be made. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.
Authors
Explore more insights
Insights
Market and portfolio insights, webinars & events curated from across our investment teams to help you steer through changing investment landscapes.
Important Information
This communication is provided for general information only and should not be construed as advice.
All the information in this communication is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessarily reflect those of Ninety One.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
All rights reserved. Issued by Ninety One.
For further information on indices, fund ratings, yields, targeted or projected performance returns, back-tested results, model return results, hypothetical performance returns, the investment team, our investment process, and specific portfolio names, please click here.