Emerging Markets Face Political Hurdles: Election Guide

(Bloomberg) -- As if the rollback of rich-world monetary stimulus and a U.S.-China trade war weren’t enough, some key emerging markets are about to run the gauntlet of potentially game-changing elections.

Turkey goes to the polls June 24, with President Recep Tayyip Erdogan -- who’s pressed for lower interest rates -- battling for reelection. Mexico and Indonesia also contest in the next two weeks. Colombia has already passed its election hurdle, with market-favorite Ivan Duque’s victory this month helping make the peso the best-performing emerging currency so far in 2018.

Political risk poses another headwind to developing-nation stocks that are heading for their worst quarter since the mid-2015 angst over a China hard landing, with the MSCI Emerging Markets Index down more than 7 percent. Goldman Sachs Group Inc. said in a note this week elections in Brazil and Mexico leave the bank shy of the real and peso, with “political clarity required to unlock” value in the currencies.

Rising U.S. Treasury yields and a strengthening dollar have already done damage, spurring -- in Asia’s case -- the biggest equity capital outflow since the 2008 financial crisis.

“With the Fed’s rate hike and an escalation in the U.S.-China trade frictions, election results will inevitably get more attention,” said Tsutomu Soma, general manager for fixed-income trading at SBI Securities Co. in Tokyo. “It’d be a double whammy for emerging markets if both the economy and politics turn sour.”

Risk goes both ways, as the Colombia example shows. And with that, here’s the timeline and points of focus for major elections coming up through 2019:

Election Timetable

June 24Turkey presidential, parliamentary electionsFirst round of presidential election to be held
June 27Indonesia local electionThe proximity of Indonesia’s regional elections on June 27 to the presidential election in 2019 heighten interest in these ballots in a country that’s seen religious tensions rise and a reformist economic agenda stall
July 1Mexico electionsTraders are coming to terms with the likelihood that leftist Andres Manuel Lopez Obrador will be the next president, and win a congressional majority
July 25Pakistan general electionInvestors are seen preferring victory by the Pakistan Muslim League-Nawaz that completed its five-year term last month, given its pro-industrial policies. They may be more wary about a win for Tehreek-e-Insaf, led by former cricketer Imran Khan
OctoberBrazil electionsAmong the top concerns is how the next administration handles fiscal vulnerabilities. In an increasingly polarized race, there’s potential of gridlock in the case of a presidential victory for far-right’s Jair Bolsonaro, and the risk of an aversion to spending cuts if his main challenger, leftist Ciro Gomes, wins office
NovemberTaiwan local electionsThe ballot offers a test of President Tsai Ing-wen’s power and whether she can continue with her China-distancing policies amid rising volatility in financial markets 
By end-DecemberIndian state elections in Rajasthan, Madhya Pradesh Two big north Indian states go to the polls in some of the last key contests before Prime Minister Narendra Modi attempts to secure a fresh mandate in the 2019 national election
February 2019Thailand general electionKasikornbank expects consumer sentiment and consumption to rise in run-up to the election and the stock market to draw support 
February 2019Nigeria electionsInvestors will watch to see if 75-year-old President Muhammadu Buhari can overcome divisions within his party to win reelection. Also in focus: would he in a second term allow the central bank to ease capital controls and loosen its tight grip on the naira?
March 2019Ukraine electionsReelection for President Petro Poroshenko could improve the nation’s chances of securing fresh IMF aid, assuming his party can win a sufficient share of the parliamentary vote in October next year
Mid-2019South Africa electionsPresident Cyril Ramaphosa, who came to power in February after the ruling African National Congress ousted Jacob Zuma, will be hard to beat. While investors welcomed his ascension, they’ll want progress on reforms he’s promised to boost a stuttering economy and rand, as well as curb corruption. The vote must be held by roughly the middle of 2019
November 2019Israel electionsElections could be brought forward from late 2019 if a corruption probe causes Prime Minister Benjamin Netanyahu’s coalition to collapse. That could see local stocks and bonds become more volatile 

©2018 Bloomberg L.P.

With assistance from Editorial Board

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