The Year Ahead in Elections Outside America

Editors’ Note: MarketMinder Europe favours no party nor any candidate. We assess political developments for their potential economic and market impact only.

Beyond America’s presidential election, the world is dotted with races next year, including what could be one of the most consequential elections of all time, pitting Vladimir Putin against Vladimir Putin and maybe Vladimir Putin in the race for the Kremlin.^[i] Kidding! But Russia’s vote isn’t the only one outside the US—and the rest don’t strike us as open-and-shut cases. Here are some of the political calendar’s highlights. As they pass, we think it should help uncertainty fall and, in many cases, extend the global political gridlock that our research shows benefits stocks.

First Up in Europe: Portugal

Portugal votes 10 March. The campaign kicked off last month, after a corruption investigation brought down Prime Minister António Costa of the centre-left Socialist Party (PS).^[ii] Leading the party in his place is Pedro Nuno Santos, a former infrastructure minister who had his own brush with scandal a year ago and mostly represents the status quo on the policy front, despite commentators we follow describing him as left-wing.^[iii] His chief competition is the centre-right Social Democratic Party (PSD), led by Luis Montenegro, which is campaigning on tax cuts, expanded social services and state pension increases.^[iv] The two are polling neck and neck at 27% each, with the right-wing populist Chega at 16%.^[v] Montenegro has thus far ruled out forming a coalition with the latter, so with the likelihood of either main party winning an absolute majority quite low, we think gridlock and an extended government formation timeline looks likely.^[vi]

In our experience, this sort of outcome can annoy voters (we think widely reported frustrations over slow-moving coalition talks in Holland provide another example), but for stocks, we find it is often a benefit. Our research suggests when a government can’t pass much, it means legislation has a lower likelihood of creating winners and losers, which helps enable risk taking and lets markets move on. Just as Costa’s former administration didn’t undo the mid-2010s’ debt crisis-era labour reforms as commentators we follow warned he would at the outset, the next government probably won’t be able to rock the boat much.

Britain’s Uncertain Timing

On paper, the next UK election isn’t due until January 2025. But Prime Minister Rishi Sunak has pledged to hold the vote in 2024, and commentators we follow have claimed the Spring Budget, scheduled for 6 March, could launch a springtime contest.^[vii] Sunak has long signalled he plans to announce tax cuts before the vote, and some analysts say announcing them in March could tee up a vote in May, before the sugar high wears off. Other publications we follow speculate Sunak could wait until the autumn, on the notion passing the cuts and giving voters a few months with some extra pounds in their pocket constitutes a better strategy.

Either way, we think he and his Conservative Party have their work cut out for them. Labour, led by Sir Keir Starmer, is polling at 43%, light years ahead of the Conservatives’ 25%.^[viii] Likely complicating matters for the latter, the upstart Reform Party, which espouses more traditionally conservative policies, is at 9% and gaining, fuelling speculation amongst many commentators we follow that it will siphon more grassroots support.^[ix] In a system with proportional representation, this probably wouldn’t be much of an issue, as it would simply add another party to the coalition forming mix. But in Britain’s first-past-the-post system, Reform’s ascent could make an outright Labour government even more likely by splitting the conservative vote.

Whilst we think this is worth noting, it is currently too far out to assign probabilities to, in our view. That time will come, once the contest is scheduled, parties select their candidates, and regional polling gets more robust. A lot will probably depend on the campaigning and which party better speaks to voters in the “Red Wall” of traditionally Labour seats in England and Wales that flipped Conservative in 2019.^[x] Labour could very well have the inside track since the Conservatives have mostly abandoned the policies that seemingly won these folks over four years ago, but things can change.

Here, in our view, the main theme of 2024 UK politics is probably falling uncertainty. For now, there are question marks galore, but eventually we will get answers, which should help markets gradually digest the outcome and move on. In the meantime, as divided as the Conservatives are, we think very little is likely to pass before the election aside from whatever small economic sweeteners they can agree on. Gridlock and falling uncertainty are fine tailwinds for stocks, based on our research.

Keep an Eye on Japan

Japan doesn’t currently have an election scheduled, and its next vote isn’t due until Halloween 2025. But its government, led by Prime Minister Fumio Kishida, is fighting for survival as a campaign finance scandal with his Liberal Democratic Party (LDP) mushrooms.^[xi] It has already taken down four cabinet ministers and tanked the popularity and influence of the late Shinzo Abe’s faction, creating something of a power vacuum. (The LDP has several factions that function as parties within the main party.) Kishida’s faction is also in investigators’ sights, and his popularity is down to 17%.^[xii]

So far, Kishida is hanging on and trying to win back voters with pledges to root out corruption and bolster economic growth.^[xiii] However, there is a history of financial scandals bringing down past Japanese governments. The Abe faction’s downfall could result in a repeat this time. It was the most influential of the LDP’s internal factions, and Kishida depended on its clout and support. If the Abe faction is indeed finished, the internal balance of power will likely change radically, making it difficult for us to see how Kishida continues. But it isn’t impossible, in our view.

Therefore, watch this space. If Kishida resigns, the LDP will hold a leadership contest that will probably be rather unpredictable, with new factions and new faces ascending. The winner could decide to hold a snap election to shore up support, which the LDP would likely win given the opposition’s reported disarray. But either way, Japan would get a new administration with new policy priorities and potentially a new economic agenda. So here, too, we think 2024 looks set to start with high uncertainty, which means plenty of opportunities for the fog to clear as the year unfolds.

Don’t Forget Emerging Markets

There are also some noteworthy contests in Emerging Markets, in our view, starting with Taiwan on 13 January. This is another too-close-to-call contest, and we think people are probably watching it more for its geopolitical implications than economic policy issues.

Polls indicate incumbent Democratic Progressive Party (DPP) and its leader, William Lai, is in a dead heat with the opposition Kuomintang (KMT), led by Hou Yu-ih.^[xiv] The DPP tends to have frostier relations with Beijing, whilst the KMT typically favours more economic cooperation, so publications we follow have cited numerous allegations of mainland interference and endless speculating about what the outcome means for cross-Strait relations. We suspect it will all probably die down after the vote, given the outcome is either an extension of the status quo (absent outgoing President Tsai Ing-wen) or a more Beijing-friendly administration.

South Korea will hold legislative elections on 10 April, which will determine if President Yoon Suk Yeol’s centre-right People Power Party (PPP) will have a majority in Parliament. Currently, the centre-left Democratic Party controls the legislature, so a PPP victory would break the current gridlock. Recent polling shows the two parties are virtually tied, with the left-wing Justice Party in third place.^[xv] That could increase the likelihood of a leftist alliance, which would maintain gridlock, but here, too, we think the vote is too far out to forecast for now. Mostly, it seems to us like just one more opportunity for investors to gain clarity as the year progresses.