“Emerging market elections ignite a ray of hope for investors, as they signal promising opportunities for growth and returns in untapped markets.”
Elections in emerging markets have become a focal point for investors, as new leadership could unlock opportunities in these regions. Recent elections in Argentina, Ecuador, and Poland have already shown positive results for investors, with gains in bonds and stocks. The upcoming elections in Egypt, India, and Mexico are also expected to have an impact on the asset class.
The potential for positive outcomes in these elections is seen as a boost for emerging-market assets, which have faced challenges such as China’s housing crisis, the Federal Reserve’s monetary policy, and conflicts in Europe and the Middle East. Philip Fielding, co-head of emerging markets at Mackay Shields UK, believes there is significant potential for political positive surprises in the next year.
The gains seen after recent elections have given investors hope for similar outcomes in the future. For example, the victory of Daniel Noboa in Ecuador’s election led to gains in the nation’s bonds. Similarly, the pro-European Union coalition winning in Poland resulted in advances in stocks, bonds, and the zloty.
Claudia Calich, the head of emerging-market debt at M&G Investments, highlighted the upside risks associated with elections if the changes brought about by the new leadership are in the right direction. She cited the re-election of President Recep Tayyip Erdogan in Turkey as an example, where the leader shifted away from unorthodox economic policies.
However, not all election cycles guarantee asset gains. Argentina, for instance, is facing its sixth recession in a decade, with sovereign debt trading below 30 cents on the dollar. Eamon Aghdasi, an analyst for emerging-market country debt at Grantham Mayo Van Otterloo & Co., emphasizes the need for difficult economic reforms that require collaboration among stakeholders.
The upcoming elections in Egypt and India also have economic implications. Egypt’s sovereign bonds are trading in distressed territory, and the country needs to unlock more financing from the International Monetary Fund. India’s general election, expected in the first half of 2024, could mean a continuation of market-friendly reforms and infrastructure spending if Prime Minister Narendra Modi wins a third term.
Mexico’s presidential vote next June could bring in capital to fund the country’s nearshoring development, as both leading candidates appear more pragmatic and centered than the current administration. These elections present positive catalysts for emerging markets as an asset class.
In addition to elections, there are several economic events to watch in different countries. Mexico’s economic activity is expected to continue its uptrend in August, while Chile’s central bank may cut its benchmark rate. Brazil’s consumer price inflation is likely to tick down, and China’s industrial profits may show signs of improvement. South Korea’s GDP growth is expected to slow, and Turkey’s central bank is forecasted to announce a significant interest rate hike.
Overall, the upcoming elections and economic events provide opportunities and challenges for emerging markets. Investors will closely monitor the outcomes and make investment decisions based on the political and economic landscape in these countries.