Upcoming elections in emerging markets are shedding light on these regions, offering potential opportunities for investors with the prospect of fresh leadership providing a boost to the asset class. Recent elections in Ecuador and Poland, which backed new, pro-business leaders, have demonstrated that the post-election period can lead to gains in various assets. These political shifts and the expectation of further elections, such as those in Argentina, Egypt, India, and Mexico, are adding complexity and optimism to the world of emerging assets, which have faced losses this year due to various challenges, including China’s housing crisis, the Federal Reserve’s policies, and conflicts in Europe and the Middle East.
The outcome of these elections may have a significant impact on over $200 billion worth of sovereign bonds, representing an opportunity to offset the losses experienced across various sectors in emerging economies. Some investors remain hopeful of positive results following elections, but others are cautious, particularly in countries like Argentina where the economic situation is precarious. For example, most of Argentina’s sovereign debt is trading below 30 cents on the dollar, indicating concerns about a potential 10th default.
Analysts suggest that some elections, if they lead to positive changes in economic policies, can offer potential upside in various assets, similar to what happened in Turkey when President Recep Tayyip Erdogan was reelected. However, it’s crucial to note that not all election cycles guarantee asset gains, as countries may face economic reforms that require challenging negotiations and agreements among stakeholders.
As India approaches its next general election in 2024, the continuation of market-friendly reforms, infrastructure spending, and a push for foreign direct investment are anticipated under Prime Minister Narendra Modi, providing potential upside for Indian stocks. This development has attracted Wall Street’s interest, particularly since JPMorgan Chase & Co. announced that it would include Indian government bonds in its benchmark emerging-market index.
Similarly, Mexico’s presidential vote in June is generating optimism as both leading candidates appear more pragmatic, potentially reducing political risk and attracting capital for nearshoring development.
Analysts believe that the upcoming election cycle in emerging markets could serve as a positive catalyst for the asset class as a whole, offering various countries within the sector opportunities for growth and investment.
In the near term, markets will be closely monitoring economic developments in countries like Mexico, Chile, Brazil, China, South Korea, Turkey, and Russia.
