Election risk ahead

Recent market volatility after elections illustrates the economic importance of political institutions; with implications for the US Presidential election

Geopolitical risk is rising around the world. But domestic political and institutional risk is on the rise also, in response to structural economic challenges and political polarisation.

One of the major themes of 2024 is that it is a year of big elections; see our 2024 outlook note.  And almost halfway into 2024, the consequential nature of these elections is clear – both politically and economically.  The experience of the past fortnight is instructive for thinking about the impact of the major elections remaining this year, most notably the US Presidential election.

Emerging markets

Last week, markets responded violently to election results in India and Mexico.  In India, the world’s largest democracy, equities first surged on (wildly inaccurate) exit polls that suggested a strong result for PM Modi’s BJP; and then sank when it turned out that the BJP had lost seats and would have to govern in a coalition.  Investors – domestic and foreign – are positive about the policies that PM …