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Could 4 billion voters shape global markets in 2024?

Jovi Ho
Jovi Ho • 7 min read
Could 4 billion voters shape global markets in 2024?
Heading to the polls this year are the US, the UK, Taiwan, Russia, India and South Africa, among others. Photo: Bloomberg
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As geopolitics become increasingly important yet unpredictable to portfolios, investors and companies should prepare for a wide range of possibilities this year, including the outcomes of key political elections across the globe, says Goldman Sachs Asset Management.

Heading to the polls this year are the US, the UK, Taiwan, Russia, India and South Africa, among others. In total, over four billion people in some 40 nations and territories are scheduled to go to the polls this year.

Taiwan’s presidential elections this month are the first to come into focus. Lai Ching-te, current vice president and candidate from the ruling Democratic Progressive Party, is the frontrunner, according to three separate surveys in recent days.

Tsai Ing-wen, Taiwan's president (left) and Lai Ching-te.

According to JP Morgan Asset Management, the successful candidate’s stance towards China will be the key element for investors to watch.

See also: Shock at Trump shooting prompts world calls to end polarisation

India, dubbed the world’s largest democracy, will go to the polls sometime in April, where Prime Minister Narendra Modi will be pushing to secure a third term.

The European Union parliamentary elections will take place over the summer, ahead of the US presidential election that will take place in November. In the UK, an election must be called by Dec 17 at the latest.

The fiscal promises of the successful party are often key to how markets react. For example, tax cuts enacted by then-President Donald Trump in 2017 fuelled a strong rally in the stock market given the wave of earnings upgrades that followed.

See also: Taiwan, India threaten China’s top spot in EM equity portfolios

In 2024, however, limited fiscal headroom in both the US and the UK will likely make it difficult for any party to deliver further tax cuts or major spending programmes, according to JP Morgan’s analysts.

With interest costs rising and deficits already more than 6% and 5% of GDP in the US and UK respectively, the economic differentiation between right- and left-leaning parties looks set to be smaller than normal, they add.

Candidates in both countries will also be scrutinised for their stance on climate change and foreign policy. In particular, this includes the role the US will play in what look to be lengthy conflicts in both Ukraine and the Middle East, says JP Morgan.

The US presidential race promises to be a tight contest, says Lombard Odier chief economist Samy Chaar. “Despite a welcome fall in inflation, a slowing economy is likely to prove a headwind for incumbent Joe Biden. The American public already perceives it to be performing poorly.”

Polls find 81-year-old Biden’s age a major weakness, while likely Republican candidate Trump, not too far behind at 77 years old, is saddled with legal battles which could deter voters who are on the fence.

Right now, a Democrat sits in the White House and Republicans control the House, with Democrats maintaining slim control over the Senate. Come November, Republicans could wrest control of all three, says Chaar.

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With no political will on either side to tackle the rising fiscal deficit, Chaar says he will be watching closely the financial and geopolitical risks arising from the US elections this year.

“We expect a year of below-trend growth, with scope for a gradual recovery after rate cuts. [In the long term], high levels of public investment, the power of the US consumer and a world-leading technology sector boosted by the promise of artificial intelligence should see the US retain a narrow growth advantage over other developed economies.”

No correlation?

That said, political events may have a limited impact on portfolios, according to JP Morgan analysts.

First, predicting the outcome of elections has, in recent years, been incredibly challenging. Polls provide a less-than-ideal guide, though it is unclear why, say analysts. Potentially, voters are unwilling to reveal more populist leanings to pollsters.

Second, it is by no means a given that campaign promises will make it into law. Over the past three US elections, the successful candidates made a combined 700 campaign promises. But so far, less than half of these have made it into law, according to data from Politifact, largely due to opposition in Congress.

Finally, JP Morgan analysts believe that over the long run, there is no clear correlation between the governing party and market performance in the US.

Key events in the economy — such as the bursting of the tech bubble or the Global Financial Crisis — tend to have much more of an impact on the average returns under different governments than the governments do themselves.

US-China distance a good thing

In June 2018, the Trump administration imposed tariffs on China to combat what it felt were unfair trade practices. That led to a series of tit-for-tat trade war actions by the two countries. The Biden administration left these measures in place and introduced new ways to counter China.

For example, in October 2022, the US banned the export of certain chips vital to China’s development of advanced semiconductor technology and China followed by restricting exports of rare earth elements essential to the US production of electric vehicles (EVs). Then, the Biden administration doubled down by invoking national security to make it harder for US firms to invest in certain Chinese companies.

As of Nov 22, 2023, China’s exports to the US have dropped 30% since peaking in 1Q2022, as exports from Mexico to the US have steadily risen and ex-China Asia exports to the US have levelled off, say Citi’s analysts.

Data from Haver Analytics also showed a sharp drop in semiconductor exports from the US and two of its allies — South Korea and Taiwan — to China, with year-to-date declines of 29%, 24% and 13% respectively through October 2023.

Recently, as talks have picked up between China and the US to thaw relations, the added distance could ultimately make for a more civil and stable arrangement, say Citi’s analysts.

Although the bifurcation of tech industries is less efficient and cost-effective than a globalised model, Citi believes there are some “offsetting benefits”. “The redundancies now being built in semiconductor supply chains, EV batteries and solar panels is a result of this divorce. They add to the economic activity in and around both neighbourhoods.”

Citi urges investors to diversify their portfolios with “global champions, agile players and beneficiaries of the supply chain transitions and changing trade patterns underway”. These companies can be found in allies and trading partners like Vietnam and Mexico, they add.

The US’s efforts to replace production and manufacturing performed in China will be costly. Hence, manufacturers integrating robotics and AI-enabled logistics to reduce labour costs stand to benefit the most, says Citi.

Beneficiaries also include large US, Japanese and European industrial automation and supply chain management firms.

The large industrial REITs sitting atop much of the industrial and warehouse properties in the US and Europe could also be potential winners, adds Citi.

Within the most sensitive parts of supply chains, the leading Taiwan-based chip fabricators would prefer not to have to build out new capacity in the US and Europe; the economics would be better if they could keep the activity in Taiwan.

For the producers of the high-end equipment, however, all that new fabrication-building is a net positive, assuming they can keep up with the orders, says Citi.

“New capacity-building in the US, Japan and South Korea should more than offset the decline of the equipment makers’ business in China, which increasingly will have its own highend suppliers to invest in.”

For agile companies, there is a cyclical element at play, says Citi. “We think there will be a tailwind for the most global players when manufacturing and economic growth accelerate under less restrictive monetary policies in 2024-2025.”

Photos: Bloomberg

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