Without a doubt, 2024 is a big year for elections.
Over the course of this year more than 64 countries, plus the EU, are heading to the polls. These include the world’s largest economy – the USA – and the world’s largest democracy – India – and some will surely close in surprise results.
The prospect of any election in any country brings with it an inherent unpredictability, particularly if new parties come into power. Any changes in political leadership increase the chance of new policies or regimes, raising concerns among investors about the implications for their portfolios.
At the moment, specifically, the polarising nature of so many upcoming elections is an obvious cause for worry. Most notably, with Donald Trump poised to run against Joe Biden in the US presidential election, there is potential for wide-reaching implications on both a national and international stage.
For instance, should Trump win – a man not known for his delicate diplomacy – already heightened geopolitical tensions could escalate further. According to his recent comments, he would want to tax all Chinese goods entering America at 60 per cent, which would likely result in more withdrawals of foreign capital from the country.
Domestically, Trump has claimed he would want to replace Jerome Powell, chairman of the Federal Reserve, which could act as a destabilising factor closer to the election, especially for bond markets.
More generally, governments have the capacity to shape policies that can materially alter business decisions, impacting how corporations and organisations function. The allocation of public funds by political parties is another element capable of shaping the economic backdrop.
Election outcomes could, then, affect companies both positively and negatively.
Investors may therefore try to anticipate election results to get ahead of the curve. But is that the best approach? We believe that it is always important to keep eyes fixed on the long term.
With notable exceptions aside – namely Putin’s recent landslide victory in the Russian presidential elections – accurately predicting election outcomes is extremely complex, if not impossible to achieve consistently.
Instead, while politics should be a consideration throughout investment decisions, they should by no means be the sole focus for investors. Politicians may talk a great deal about what they say they will do, but in reality, very few radical changes are ever made.
In the US, only approximately 50 per cent of all legislation promised to the electorate is actually passed.
Moreover, staying with the US as an example, history has shown that there is no consistent pattern between the party in power and growth in gross domestic product or returns on the US stock market. Economic factors tend to be bigger drivers of returns.
