How the biggest election year in global history will affect emerging markets investors

The US election will take the spotlight, but EM investors need to keep tabs on dozens of other national polls this year. Here’s an overview from Pendal’s Emerging Markets team

• Elections to come in India, Indonesia, South Africa and Mexico
• Global geopolitics will significantly impact emerging markets
• Find out about Pendal Global Emerging Markets Opportunities fund

THIS is the biggest election year in history, with half the planet’s population due to elect a national leader.

More than 50 countries will hold national elections in 2024 – including many emerging markets.

“2024 has the highest concentration of elections, possibly in modern history,” says Paul Wimborne, co-manager of Pendal Global Emerging Markets Opportunities fund.

“And emerging markets are very much part of this line up. There has already been presidential elections in Taiwan and later in the year there will be elections in India, Indonesia, South Africa and Mexico.

Those countries represent 40 per cent of the MSCI Emerging Markets Index by weight and 1.9 billion people.

Investors will need to consider the ramifications of elections with the potential to affect the global macro environment that matters so much to emerging equity markets.

We’ve already seen the re-election of Taiwan’s pro-sovereignty Democratic Progressive Party draw the ire of Beijing.

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Financial markets continue to be directly impacted by sanctions on China; the impact of Russia’s invasion of Ukraine on commodity prices and trade; and an evolving set of overlapping conflicts in the Middle East and Red Sea.

Here’s a quick look at the elections that will affect EM investors:

Taiwan (Jan 13)

The Taiwanese election, held in mid-January, was won by Willian Lai Ching-te from the governing Democratic Progressive Party (DPP).

It’s the first time the same party has won a third Presidential term since direct elections were introduced in 1986.

“DPP is the more pro-independence of Taiwan’s main parties and it received just over 40 per cent of the vote,” Wimborne says.

“Taiwan also had a legislative election where the KMT, a more pro-Beijing party, won 52 seats out of 130. DPP won 51 seats. It means the winning President doesn’t have a legislative majority.”

For emerging market investors, an election like Taiwan’s is crucial in understanding where opportunities, and risks, lie.

“In Taiwan’s case, the President does not have a clear mandate, so that really suggests a status quo outcome.

“Clearly the election is very important from a geopolitical point of view with the relationship between the country and China the key issue.

“For investors, the holding of the election reduces the short-term uncertainty because we know what the outcome is.

“And it also tells us in the medium term, the cross-strait tension between Taiwan and China is probably here to stay.”

India (April-May) and Mexico (June 2)

Investors in emerging markets worry mostly about unexpected results which could move equities, bonds, property markets, currencies and other asset classes, Wimborne says.

“In India, there is an election in the next couple of months. The market has priced in continuity, and it would be a shock of Narendra Modi doesn’t win.

“In Mexico, the market is assuming the most likely result is the current incumbent AMLO’s (Andres Manuel Lopez Obrador) preferred candidate will win, and his party will retain power.

AMLO, having served a single six-year term, is unable to run again. 

Russia (March 15-17)

March brings the presidential election in Russia.

The last election in 2018 is widely thought of as neither free nor fair. Incumbent Vladimir Putin received 77.5% of the vote then, and the political system in Russia has become intensely more repressive since.

Economic strain is substantial. Many Russians have seen their ambitions destroyed and the country may have taken more than 100,000 casualties so far in its invasion of Ukraine.

A Putin victory has to be the expectation, but there is the possibility of protests and crackdowns that may alter Russian policy.

Venezuela (sometime in 2024)

Similarly, the first half of the year should see a presidential election in Venezuela. Like Russia, the country is in no meaningful sense a democracy.

The leading opposition candidate Maria Corina Machado was barred from politics in June 2023 – so a victory for the governing coalition (probably for the incumbent Nicolás Maduro) has to be the expectation.

In the run-up to the election, Venezuela has made claims on almost all of the territory of neighbouring Guyana, with possible military action backed by Iran, Russia and China.

This would lead to a substantial worsening of global geopolitics with varying potential outcomes.

Israel

While Israel does not have an election scheduled, the current emergency government formed after the Hamas attacks in October 2023 may not last throughout 2024.

The country has undergone five elections between 2019 and 2022 in search of a viable coalition.

A snap election could lead to anything from a mandate to negotiate a political settlement to the current crisis to a shift to an even more overtly nationalist government that would deepen the conflict with both the Palestinians and with Israel’s neighbours.

United States (Nov 5)

The greatest ‘unknown’ in this election year for emerging markets is the United States.

“The US election is the one that has the potential to cause most uncertainty across emerging markets,” Wimborne says.

“It’s difficult to predict who is going to win — and then it’s also difficult to predict what policies would be, particularly if Trump wins.

“What would US policy be in terms of geopolitics and domestic priorities, as well as what that means for interest rates and the US dollar?”

UN Security Council (mid-2024)

In addition to these national polls, five non-permanent members of the UN Security Council are due to elected in mid-2024.

Although most of the power sits with the five permanent members (who have vetos), it is here where any attempts to resolve these conflicts will start.

Among the countries likely to be elected are Pakistan and Somalia.

Pakistan is close to China and Iran and in dispute with India. Somalia is in a dispute with Ethiopia which has the potential to further worsen the geopolitics of the Red Sea region.

Global geopolitics are fraught as we go into 2024 and all these elections have the potential to lead to a substantially better or worse world.

Investors will need to follow them closely and react accordingly.

Portfolio implications

For investors, all this uncertainty means they must stick to their strategies and processes, says Wimborne.

“Stick to your game plan and then react to changes if the outcomes aren’t as the market predicted.

“You need to build a resilient portfolio and know where the risks are being taken.

“Look at the portfolio as a whole and understand what would happen if the oil price moves or bond yields change, or currencies move.

“Have a cohesive portfolio where you understand the risks, and when the facts change, respond in the appropriate way.”

About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne and Ada Chan are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here
 
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