Global markets bracing for a 2024 full of potentially volatile elections
- Elections in India, Indonesia, Taiwan, the US and elsewhere have the potential to reshape global markets depending on who emerges victorious
- Local asset markets could be more volatile ahead of the votes and perform more constructively once there is higher certainty about the future policy outlook
Local asset markets could be more volatile ahead of the votes and perform more constructively once there is higher certainty about the future policy outlook.
Of course, market reaction could show greater caution if there is a hung parliament, a fragile coalition or a new government that is perceived to be less business-friendly. When assessing the market performance around an election, we need to take into account the prevailing economic climate and monetary policy.
Although some of the current candidates have policy track records that can help mitigate uncertainty for investors, we might not see a sustainable solution to the fiscal deficit challenge. This could potentially raise market expectations for government bond yields in the long run because of ongoing strong supply and potential inflationary effects.
During the campaign, Republican and Democratic candidates could offer different policy priorities that could effect specific sectors or industries. A Republican candidate could be more inclined to keep corporate taxes low. They might also opt to be less hands-on regarding regulation, especially on the healthcare sector, financial industry and fossil fuels.
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As such, a presidential candidate’s policy pledges are by no mean absolute. This will also depend on whether the next president has the backing of the Congress. They could use executive powers to push through some policies, but this could be challenged in courts or overturned by future presidents.
For the economies of India and Indonesia, the potential for more reform and continued efforts to develop their manufacturing industries would be constructive for long-term growth, especially as more international companies look for alternatives to reduce concentration in their supply chain and diversify away from China.
Although there is plenty of research on historical market reactions to different government configurations or different years of a presidency, its ability to forecast future market performance is limited. Ultimately, the prevailing macroeconomic conditions, monetary and fiscal policy stances, and corporate fundamentals have a much greater impact on asset returns.
While historical data indicates that returns are typically lower and volatility is higher during election years, this trend was distorted by events such as the tech sell-off in 2000, the 2008 global financial crisis and the wild market swings of the Covid-19 pandemic. There is usually an increase in market volatility leading up to the elections because of uncertainty, but this tends to dissipate once the results are announced.
Tai Hui is chief market strategist for the Asia-Pacific at JP Morgan Asset Management