This year has been an election year around the world, with voting results in Asia and the Americas surprising investors this week, resulting in the first big surprise for stock markets in 2024.
2024 is set to be the biggest election year in history, with more than half the world’s population due to go to the polls in 50 countries, including a rematch between Joe Biden and Donald Trump.
Analysts said the disappointing results from India and Mexico were a reminder of potential market volatility ahead.
Modi’s narrow victory leads to surge in selling
Modi will remain prime minister as his Bharatiya Janata Party and allies won a majority in India’s lower house of parliament, but investors were disappointed by the narrower-than-expected victory.
India’s leading Nifty 50 index suffered its worst day since the start of the pandemic, falling nearly 6%, while the rupee weakened against the US dollar and 10-year government bond yields rose slightly. However, stock markets recovered these losses later in the week and closed higher on Friday.
Modi’s social policies, often aligned with right-wing Hindu nationalism, have been controversial during his 10-year tenure as prime minister.
But his economic policies have boosted the Indian economy, attracted huge amounts of foreign investment and won him the support of Wall Street luminaries such as Jamie Dimon, Elon Musk and Tim Cook.
Analysts said the sharp fall in stocks and the rupee reflected investor concerns that Modi’s smaller-than-expected majority will make it much harder to pass pro-growth, pro-business reforms.
“There are concerns that market-friendly policies may be diluted if they are forced to rely on alliances with smaller parties,” Russ Mould of UK-based brokerage AJ Bell wrote in a research note.
Scheinbaum’s landslide victory sparks panic on Wall Street
On the other side of the world, Mexico’s Claudia Sheinbaum is celebrating a much bigger victory.
The leader of the left-wing Morena party won more than 60% of the vote in Sunday’s general election and is set to become the country’s first female president, but her victory triggered a stock market crash.
Mexico’s main stock index fell 6 percent on Monday as investors reacted to Scheinbaum’s victory, and the peso fell 4 percent against the dollar, according to Reuters data.
Mexico’s President-elect Claudia Scheinbaum. Fernando Llano/AP Photo
Meanwhile, Morgan Stanley downgraded Mexican stocks, with strategists saying the “unprecedented” size of Sheinbaum’s victory had put the bank in “wait-and-see mode.”
Sheinbaum has pledged to press ahead with government spending plans despite concerns about Mexico’s high budget deficit, with the World Bank projecting the country’s budget deficit to reach 5.4% of GDP by the end of 2024.
“The Mexican stock market has fallen hard,” Kathleen Brooks, director of research at XTB UK, told Business Insider. “There’s fear now because now Scheinbaum has a majority, he could intervene in the economy and that’s really scaring investors.”
Focus in November
European elections are this week, Britain votes in early July and then Biden faces off against Republican front-runner Trump in November in what oddsmakers say will be a coin toss.
Investment experts have long pointed to the U.S. election as a potential source of uncertainty, and the dramatic swings in stock prices in India and Mexico should be a reminder that more volatility is to come, analysts said.
“It’s often said that markets don’t like uncertainty, but with roughly half the world’s population going to vote this year, the only safe bet is that uncertainty will continue in the short term,” said Danny Hewson of AJ Bell.
“The market reaction to the Indian elections, which did not turn out as most people expected, gives us an idea of ​​the volatility that may lie ahead as election fever spreads to the UK and across the Atlantic to the US.”
This week’s results were a warning, XTB’s Brooks told BI: “It’s created huge volatility and a reminder of the election risks looming later this year.”
