As we approach the year 2024, the global political landscape is poised for significant changes, with elections scheduled in 64 countries that collectively represent four billion people. With this in mind, Octa’s latest analysis delves into how these political transitions could potentially influence investment environments.
Important note: Our analysis is impartial and focuses solely on the economic and market implications of political events. We do not align with any specific political party or individual.
The majority of electoral activity in 2024 will take place in Europe, where 19 countries are set to hold elections. This could result in leadership changes in 10 nations and shifts in parliamentary compositions in 11 countries. Of particular significance are the European Parliament elections involving 27 EU member states and impacting 447 million individuals. Surveys suggest that Eurosceptic parties may secure a substantial portion of seats, potentially up to 40%.
One of the most anticipated events in global politics will be the November elections in the United States.
It is crucial to also consider elections in other regions, as they too have the potential to reshape the global power dynamics.
While investors typically prioritize financial news over political developments, focusing on factors like monetary policy changes and corporate activities, understanding the political landscape is essential before making investment decisions during election periods.
Examining the U.S. Scenario: Trump vs. Biden Revisited On March 18, 2024, the U.S. political stage is set for a rematch between Donald Trump and Joe Biden, who have emerged as the primary candidates for their respective parties. This sets the stage for a highly anticipated electoral battle reminiscent of the 2020 campaigns, promising intense competition.
Early Elections on the Horizon in the UK Despite initially being scheduled for January 2025, the UK may witness early elections. This follows Labour leader Keir Starmer’s call for an expedited vote, challenging Prime Minister Rishi Sunak to address pressing national issues promptly. The proposed 2024 election, now slated for the latter half of the year, aims to offer a choice between ‘continued decline with the Conservatives or national renewal with Labour.’
Turmoil in Japan’s Political Sphere Japan is grappling with a scandal that has significantly tarnished the authority of Prime Minister Kishida Fumio and his faction, alongside the dismissal of four cabinet ministers. This has created the potential for a leadership crisis, with Kishida striving to restore public trust by pledging to combat corruption and spur economic growth. However, if he fails and resigns, a tumultuous power struggle may ensue, leading to a new administration with shifted political priorities and potentially a revised economic agenda.
Illustrative Example: Elections’ Impact on the Economy and Investors
During election seasons, many investors mistakenly believe that market performance hinges on the victory of their preferred party or candidate. However, historical market data shows otherwise, demonstrating that financial markets tend to flourish regardless of the ruling party.
Let’s consider the U.S. elections as a case study. What implications does a Republican or Democrat president hold for financial markets? Analysis of U.S. market trends reveals that political leadership has minimal correlation with market performance, as markets have generally thrived across various presidential administrations. Here’s why:
- Consistent Market Growth Across Administrations The U.S. stock market has delivered positive returns under most administrations, barring periods of severe economic downturns. Since its inception in 1957, the S&P 500 index has yielded an average annual return of around 10%, irrespective of the ruling party. Additionally, the U.S. economy has maintained an annual growth rate of approximately 3%.
- Stable Economic Landscape Despite Political Changes The fundamental structure of the U.S. economy has remained largely unaffected by political transitions over the years. Even under single-party rule, significant economic shifts have been rare. Moreover, the passage rate of significant bills has not surged during periods of unified executive and legislative control by the same party.
- Monetary Policy Supersedes Executive Actions While the executive branch plays a role in economic governance, its policies operate within the broader framework of monetary policy, which holds substantial sway over a president’s success. For instance, Presidents Reagan and Clinton benefited from consecutive interest rate reductions, while Presidents George H.W. Bush and George W. Bush encountered challenges due to tightening Federal Reserve policies, leading to economic downturns. President Obama enjoyed favourable interest rates for most of his tenure, except for a brief period in 2015-2016. Conversely, President Trump faced tightening monetary policies during his initial years in office.
Historical trends indicate that avenues for innovation and investment opportunities persist irrespective of electoral outcomes.
While the upcoming year may witness significant political changes reshaping governmental structures, discerning direct correlations between political scenarios, presidential popularity, economic conditions, and financial market dynamics can be challenging.
Investors are urged to focus on the broader global economic landscape and central bank policies rather than solely on political events. Timing the financial markets based on election cycles is often fraught with risks and uncertainties, making it a less advisable strategy in most cases.
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