A Global Roundup of Political Developments (Outside France)

Editors’ Note: MarketMinder favors no politician nor any political party anywhere. We assess political developments for their potential economic and market impact only.

When it comes to politics, pretty much all eyes in the financial world are on Sunday’s French election. We will have more to say about that after the fact, but in the meantime, here is a cocktail of other political snippets (and their stock market implications) to wet your whistle.

Boris Johnson Pays Fine, Says Sorry, Remains Employed

Not long ago, UK Prime Minister (PM) Boris Johnson was hanging on to his job for dear life as the scandal known as Partygate threatened to bring him down. For those unaware, Johnson came under fire a few months back as word leaked that he, several Downing Street staffers and cabinet ministers had partied indoors while England was stuck in lockdown—including one event the weekend the Queen sat alone at the Duke of Edinburgh’s funeral. Outrage ensued, as did a police investigation and calls from fellow Conservatives for him to resign. Even when an official government inquiry was circumspect about whether the PM had broken the rules, many observers presumed that if Partygate didn’t bring him down, the country’s “cost of living crisis” would as voters absorbed the pain of stealth tax hikes and inflation.

That was in February. And now? Last week, the police found Johnson violated lockdown rules and slapped him with a fine. Polling showed a majority of voters thought he should resign. He issued a long-winded apology to the House of Commons and wears the dubious distinction of being the first sitting PM to be found in violation of the law. Yet his job looks safe. Some influential Conservatives have withdrawn their calls for a party leadership vote. Chief rivals don’t appear to be sharpening their knives anymore.

You see, some things have happened in the interim. Vladimir Putin invaded Ukraine, and Johnson has been at the forefront of the West’s sanctions-oriented response. That has seemingly helped boost his approval rating by several points and narrowed Labour’s polling lead a smidge. The general consensus among Conservatives now seems to be that changing horses midstream would boost Putin and weaken the UK’s international standing.

Meanwhile, rising living costs are hitting people hard. But it seems to be hurting would-be challenger Rishi Sunak, the Chancellor of the Exchequer, more than Johnson. Because Sunak releases the Budget, he wore the blame for the stealth tax hikes. Those hikes took effect as it came to light that his wife has “non-domiciled individual” (or “non-dom”) status, which enabled her to avoid paying UK tax on huge dividend payments from Infosys, which her father founded and she holds a large stake in. She eventually pledged to stop using this status and pay full British taxes, but the political damage was done. That, plus Sunak also receiving a fine for breaching lockdown rules, seemingly killed his leadership hopes for now—and made his candidacy as a Johnson replacement seem like a stretch.

Obviously, there is a lot of sociology here. Like, a lot a lot. We won’t wade into any of it, because stocks don’t. Rather, they care primarily about uncertainty. These latest developments appear to have eased it quite a bit. Markets are getting clarity about Johnson’s staying power, enabling them to move on from the will he stay or go? question. Meanwhile, his weakened political capital likely raises gridlock, reducing the legislative uncertainty that would ordinarily accompany a government with a majority as big as the Conservatives’. In two weeks, we will get the UK’s local election results, giving more insight into how Johnson’s adventures affect his party’s grassroots popularity. Soon after that, a by-election in West Yorkshire will show whether Johnson’s popularity endures in the so-called Red Wall of longtime Labour seats that flipped in 2019. (It should also deliver high entertainment, if reports that Ed Balls—the former cabinet minister who once tweeted his own name, went viral on Strictly Come Dancing and dazzled even the great Mary Berry on Celebrity Best Home Cook—plans to enter the race are true.)

As these events comes and go, uncertainty should tick down further, giving people more breathing room to take risk, and giving stocks a few less things to stew over. That doesn’t mean the UK will continue to outperform, as its early 2022 burst seems tied to it being heavy on Energy and value stocks and light on Tech and growth. But it should contribute to falling-uncertainty tailwinds globally.

Aussies Get Ready to Plug Their Noses and Vote

If you get cranky when an election is a choice between two unpalatable candidates, spare a thought for our friends Down Under, who will hit the polls on May 21. Their main choice will be between incumbent Prime Minister Scott Morrison’s Liberal-National Coalition (L-NC) and the Australian Labor Party’s Anthony Albanese—or, if you prefer, ScoMo and Albo. Both men have net negative approval ratings, and polls show either party will struggle to cobble together a majority. Pundits overall think Albo probably won Wednesday evening’s debate, but television ratings were so low that the impact will likely be marginal. It seems to fit with famous Aussie author Donald Horne’s description of Australia as “a lucky country run by second-rate people who share its luck.”

Polls do show Labor a few points ahead of the L-NC, but we wouldn’t make too much of it. Australian polls also showed Labor leading before 2019’s election, but the L-NC took 77 of the House of Representatives’ 151 seats, versus just 68 for Labor. Observers doubt pollsters have fixed the issues that led them to overestimate Labor voters’ turnout and underestimate support for the L-NC, which tends to do better among older demographics. Bookies recently cut the odds on an L-NC win dramatically, but anything can happen in a month, and neither side has this sewn up.

Whatever the outcome, all signs point to falling uncertainty and gridlock here, too. Maybe the L-NC or Labor manages to eke out a tiny majority. Maybe voters deliver a hung Parliament, giving the country either a shaky coalition or minority government. That could tee up further turns of Australia’s infamous revolving door, which once inspired an entrepreneur named Gwen Blake to design and sell tote bags saying, “Ban the Single Use Prime Minister.”^[i] Precious little legislation would pass in any of these scenarios, extending gridlock.

Speaking of Shaky Coalitions

Last year, after four inconclusive elections in less than two years, Israeli politicians managed to cobble together an eight-party coalition whose participants agreed on little besides a general desire to sideline former PM Benjamin Netanyahu. As part of the power-sharing deal, right-wing Yamina Party leader Naftali Bennett became PM and agreed to swap places with centrist Yesh Atid party leader Yair Lapid after two years … if the government survived that long.

That is increasingly in question. Earlier this month, the coalition lost its majority when its chairwoman, Idit Silman, resigned, denouncing the compromises Yamina had to make to stay in government. That left the coalition with 60 seats in the 120-seat Knesset—a number that might drop further when the chamber reconvenes in May. The Ra’am party, which is the first Arab party to join an Israeli government, has threatened to quit the coalition over disagreements on the handling of escalated violence around holy sites. If even one member of it or any other party walks, it would leave the coalition vulnerable to a no-confidence vote.

It isn’t at all clear how this will resolve. The violence puts religious identity and national security front and center, which could heighten rhetoric from the coalition’s disparate parties and dissolve their unity. Then again, many think the violence was tied to the rare overlap of Ramadan and Passover, which will be over by the time the Knesset reconvenes on May 8. That could be enough time for things to simmer down and extend the status quo.

Either way, we don’t see the bigger picture changing. Israel has had deep gridlock and periodic political uncertainty for years. Markets are quite used to this cycle. Moreover, Israel’s market is tiny, with just 16 constituents—4 of which represent almost half its market capitalization. That makes company-specific drivers and global sector trends a larger driver of returns than local political fundamentals, in our view.