Ballot boxes and bull markets

07 décembre 2023

Round checkboxes on white paper and an orange ballpoint pen.

2024 is shaping up to be a historically significant year for elections, with around half of the world’s population having the opportunity to vote. An estimated 76 countries will hold elections in 2024, including eight of the 10 most populated (Bangladesh, Brazil, India, Indonesia, Mexico, Pakistan, Russia and the US). Europe will witness the most election activity, with 37 countries voting, followed by Africa with 18.

US elections: The world watches

The US election in November, when voters will choose the next president, the entire House of Representatives and a third of the Senate, is expected to dominate headlines. The most likely scenario is a rematch between President Joe Biden and Donald Trump.

The shifting focus of Europe’s political landscape

The European Parliament elections are in June and the topic of migration will likely be at the forefront of debates. If current trends persist, the EU could see the highest number of asylum applications since the 2015-16 refugee crisis. Once thought of as a solution to labour shortages, migrants are increasingly being viewed by some European politicians as a security threat, despite ongoing worker shortages. This could lead to a meaningful political shift toward stricter immigration controls.

Dutch elections: A sign of the times?

The Netherlands’ snap elections on November 22 were perhaps a glimpse of what is to come, with the far-right Freedom Party led by Geert Wilders winning unexpectedly. No party achieved more than 25% of the vote, necessitating coalition talks that could stretch well into 2024. In addition to a strict stance on immigration, the Freedom Party campaign included higher taxes on banks, which negatively impacted Dutch bank stocks the following day. However, the Amsterdam Stock Exchange remained stable after the election due to the pending coalition formation.

Poland’s election results as a market catalyst

Poland’s October elections saw a major upheaval, with the long-ruling nationalist party being replaced by pro-Europe parties, lifting Polish markets the following day.

From voting booths to market trends

That is not to say all elections wield the same influence. Russia’s elections are unlikely to challenge Vladimir Putin’s stronghold. Brazil and Turkey will hold local or municipal elections, while the EU will elect its next parliament.

India, the world’s largest democracy, is likely to see Modi’s party re-elected in May despite some recent discontent. Indonesia will also hold elections early in the new year.

Taiwan’s January elections, important for their geopolitical implications, are expected to see the pro-independence party maintain control. It remains to be seen how the country’s relationship with China will develop from there.

Understanding the election effect on markets

US Bank reports that the S&P 500 Index typically experiences lower returns due to investor uncertainty before US presidential elections, with stronger returns in the following year regardless of the election outcome. Notably, returns tend to be higher when an incumbent party is re-elected and when one party wins decisively, suggesting larger policy changes.

Investing smart in election years

We believe our diversified portfolio is especially critical in periods of uncertainty. Election outcomes can heavily influence economic policies, affecting taxation, regulations and economic reforms. These changes have the power to shape various sectors and industries in profound ways. Safeguarding your investments by diversifying across different securities and industries is a wise strategy.

The role of quality companies

Quality companies that demonstrate enduring strength, guided by capable management and driven by long-term secular trends are well-equipped to weather the market’s ups and downs. Their resilience and adaptability often become key to their sustained success, offering a more grounded perspective for investors looking beyond the immediate horizon of shifting politics.

Gestion d’actifs Global Alpha Ltée
décembre 7th, 2023