How global elections will affect investment opportunities

In the upcoming year, the world is set to witness a monumental political exercise across 64 countries, engaging nearly half of the global population. This extensive electoral process, involving 4.2 billion individuals contributing over 60% of the world's economic output, demands attention and strategic analysis. With so much of the world involved, it is important for investors to look out for key triggers, apply careful scrutiny, and strategic analysis of political events that are most likely to impact the markets.

General market impact

Elections have the potential to impact financial markets. In the near term this will typically be if they lead to changes in fiscal and monetary policies, which tend to happen quite soon after a new administration takes office. Such policy changes can affect both equity markets and currencies quickly, especially in those economies where government borrowing is already high and the need for presenting a credible economic strategy is paramount.

On a longer time horizon, if an election is expected to lead to changes in strategic trade agreements and/or regulatory frameworks, then the outcome has the potential to spread further, influencing global trade dynamics through the disruption of established import-export flows and supply chains, and injecting volatility into commodity markets.

Accordingly, election results, and the changing political/trade alliances they may herald, have the potential to influence not just financial markets in their immediate aftermath, but can also have long-term implications for commodity markets and centres of production.

However, while uncertainty surrounding election outcomes, particularly in politically sensitive regions, can lead to increased volatility, it's important to note that this volatility may not always materialize to the extent expected. 

Currency markets

Currencies are typically the first asset class to react to election results and the changing economic policies they can represent. Market anticipation of changes to both fiscal and monetary stances can lead to large fluctuations in the currency markets, particualry in the major currencies such as the USD, EUR and GBP. Accordingly, it is crucial for forex traders to stay vigilant, monitoring election-related updates to gauge potential opportunities and risks, with changes in leadership, economic policies, foreign policy orientations and changing political alliances, all presenting sources of tension and potential volatility that can influence currency valuations as traders factor in these risks.

And of course, some elections are more significant than others. Elections in major economies, such as the United States, can reverberate across global markets, as significant shifts in investor sentiment are triggered on the back of revised expectations regarding growth, monetary and fiscal stances, perceptions of political stability etc. These revisions will typically be initially reflected in exchange rates, with movements seen in major pairs such as EUR/USD, GBP/USD, and USD/CNH.

But there may also be opportunities in more exotic currency pairs, such as the Turkish lira and the Mexican peso, where generally less liquid markets present the potential for greater volatility around election periods.

Stock markets

The impact of the 2024 elections on global stock markets will depend on various factors, including not just the eleciton result, but also on the policies proposed by the winning party/candidate and on the broader economic and geopolitical implications the election result might entail. While it is challenging to predict with certainty which specific elections in 2024 will have the most significant impact on stock markets, several key elections are worth monitoring due to their potential implications for economic policies and market sentiment.

For example, the US presidential campaign will be keenly watched by investors as a potential switch from a Democratic administration to a Republican one could see policy changes enacted that have the potential to impact various stock sectors, such as healthcare, education, technology, finance, and retail. With US growth proving to be so robust, both Biden and Trump are likely to leverage the strong stock market performance seen during their respective tenures as a political tool to sway voters. 

Elsewhere, elections will also be closely watched in places such as India and the UK, given the size of their economies and the potential they have for global markets. And in Europe too, where the European Parliament, along with several key European nations including Belgium and Austria, are holding elections and where the ‘soft-power’ they exert on the global stage could potentially impact markets.

However, as noted above, while historical market performance may offer a valuable insight into performance going forward, it remains important to remember that is should be used as a guide only; future outcomes may diverge significantly. Market responses to elections can be unpredictable and may not always follow historical patterns. Investors must therefore rely on a comprehensive range of market analysis tools and risk strategies to position themselves effectively to try and capture potential profits in this dynamic landscape.

Commodity markets

Commodity markets, while typically relatively less volatile than currency and stock markets, can present longer term trading opportunities as they react to economic policies that can influence supply and demand dynamics in goods markets. Potential policies such as infrastructure investments, renewable energy initiatives, agricultural subsidies and even changes to sanctions regimes, can drive changes in demand dynamics for most commodities, including both non- and precious metals, energy products, and agricultural goods.

Elections in commodity-producing countries that have a monopoly on, or significant share of, global output, can potentially increase/ease pressure on supply chains and drive up/lower prices. These shifts might occur via changes to extraction or refining output, or the production of agricultural products. It is easy to see how such changes might inject significant volatility into commodity markets.

For example, in the US, the largest global producer of oil, potential Presidential candidate Donald Trump has expressed an intention to increase the output of oil and gas, and potentially coal also, which could put sustained downwards pressure on energy prices. In contrast, in the UK, the opposition Labour Party - widely expected to win the forthcoming election - is committed to revoking the new drilling licenses recently issued to North Sea oil and gas producers, potentially providing some support for energy prices.

More generally, elections in Russia and India, both key members of the BRICS trading bloc, could see trade within the bloc boosted at the expense of that done with external trading partners, raising prices for commodities exported to non-BRICS members.

Given all of this, commodity investors should maintain flexibility and adapt their strategies accordingly. While immediate price fluctuations may be modest, the 2024 political landscape of numerous elections presents the potential for significant changes to be seen in the commodity demand and supply dynamics currently in play, providing an opportunity for vigilant investors to potentially benefit from these changes.

In 2024, global geopolitics resemble a volatile chessboard, with tensions escalating in certain areas. Factors like political unrest and trade disputes pose risks of supply shortages, affecting commodity prices. Consequently, investors may turn to safe-haven assets, such as gold, which could drive up demand and prices.

Going forward

Going forward, we will be analyzing the key elections that are expected to have the greatest impact on the markets, offering analysis and insight into what investors should be prepared for as we approach each key election date.

Key elections and their potential market impact

Taiwan, 13 January 2024

Investors should pay close attention to any further deterioration in Cross-Strait relations, which have the potential to impact regional stability and trade flows. Given Taiwan's importance in the manufacture of microchips and the tech industry in general, the potential exists for any regional conflict to spread rapidly and infect markets around the globe.

Russia, 15-17 March 2024

With President Vladimir Putin almost guaranteed to win the forthcoming Presidential election, relations with the West look set to remain strained and suggesting no end to the economic uncertainties this causing, such as ongoing concerns over European energy security. However, a Putin victory could potentially bolster stability within the BRICS group of nations, enhancing its economic weight as Russia seeks to develop a trading bloc capable of competing with the West. The outcome could be increased geopolitical tensions, with market sentiment impacted accordingly.

Turkey, 31 March 2024

A history of unorthodox economic policies suggests elections in Turkey present the potential for further volatililty, particularly in the stock market and the Lira. Turkey’s geographical significance for shipping routes, especially access to the Black Sea, additionally means developments there are currently carrying more weight than normal and present a heightened risk of possible market volatility, particularly among key sectors such textiles and non-precious metals.

EU parliament, 6-9 June 2024

Changes in the political landscape of the European Parliament could shape the EU's policy agenda and legislative direction over the medium term, affecting key initiatives such as the Green Deal and efforts to achieve net-zero carbon targets. Post-election uncertainties surrounding party coalition dynamics may potentially lead to delays or compromises in all aspects of policy making, negatively affecting investor confidence and economic growth in EU member states.

United States, 5 November 2024

The US Presidential election has the potential to affect nearly all asset classes around the world. With the potential for the result to signify significant shifts in trade relations and a different path for economic policy, the outlook for everything, from continued support for renewable energy stocks under a Democrat victory to efforts to expand oil and gas extraction under a Republican win, remains uncertain and looks set to entail a period of heightened market volatility in the run-up to and immediate aftermath of the result.

United Kingdom, before 23 January 2025

Elections in the UK need to be held at any time between now and 23rd January 2025. However, whichever party wins, the ability to significantly deviate away from current economic policy looks small, given the over-riding need to bring down the country’s large borrowing requirement. Accordingly, tax and spending plans may remain largely unchanged whatever the election result. Any changes in policies, therefore, will largely be fiscally neutral and consist of diverting funds away from existing projects in favour of alternatives. One key area of change may be seen in the energy sector, where the current support for oil and gas extraction may be abandoned in favor of promoting renewable energy resources.

As we move through 2024, the major elections have the ability to re-shape the global landscape. Smart investing is key, with a need to stay informed, re-assess long-term goals and potentially increase investment diversification. If investors can navigate this dynamic global market with confidence then they can maximise their potential to capture the opportunties presented while at the same time minimising risks.