2024 elections and their potential impacts on markets

2024 promises plenty of political twists and turns. 2024 will see over 40% of the world's voting population head to the polls. Alongside the headline act of the contest for the US Presidency, fans of political theatre can look forward to elections across the whole of the European Union to the European Parliament. There will also be elections across a range of EU member states, as well as India, South Africa, Indonesia, and probably the UK. All told, national elections are likely to take place in over 40 countries. Closer to home, a general election must be held in Ireland by March 2025, but it may well be called before the end of 2024, possibly even before the summer, and international investors are watching opinion polls here closely. We will also have to deal with a changeover in the European Parliament, in what is expected to be a contentious set of races.

Political risks can arise for markets at any time, but election years tend to bring them into focus. At the very least, certain political footballs get a good kicking - think US healthcare insurance or immigration policies across Europe. They can also prove to be inflection points producing a genuine change in economic regimes or international relations. The upcoming Taiwanese election in January will result in a government that leans either closer to or further away from China, for example, options that have much wider implications for East-West relations. In the US, the climate-change tackling Inflation Reduction Act will be in the crosshairs of certain Republican candidates - broadly speaking a choice between new, renewable energies or traditional fuel sources and industries.

Distinguishing potential impacts on your portfolio from the noise and bluster of election campaigns can be tricky, and invesors are seldom served well by trying to trade around this in the short term. However, where larger structural risks arise, their effects are felt across different asset classes. Where corporate profitability is threatened, perhaps through regulatory change or because of political instability, this is primarily felt in equity markets. On the other hand, where national balance sheets are called into qustion, this can drive repricing in sovereign debt or currency markets. The Truss/Kwarteng mini budget of 2022 was a particularly dramatic example of this. 

Our portfolios constantly have to digest new political developments, so this is not new. What is perhaps unusual about the next twelve months is that so many geographies, across developed and developing markets, will experience a heightened election risk at roughly the same time. Investors worldwide will not be able to sit this one out.

Generally, as election cycles progress and conclude, markets appreciate uncertainty subsiding. So while 2024's campaigns have the potential to be bruising, they also provide a chance to reach a political settlement and a clearer backdrop against which to invest. Upcoming editions of MarketWatch will explore these risks and opportunities in more detail.