How recent elections are shaking up investing in emerging markets
Investors in emerging markets had a volatile week after surprising election results appeared to have caught at least some investors off guard. The recent elections in India and Mexico were two of the most closely watched in a year packed with voters globally, and stock markets in both countries witnessed huge fluctuations after initial election results. As results are finalized and changes take place, countries could have a big impact on emerging markets exchange-traded funds, which are off to a solid start through 2024. election, but it appears his party lost seats in parliament. Indian stocks have outperformed globally under Modi, and his weaker-than-expected results appeared to spook some traders. The iShares MSCI India ETF (INDA) fell 6% on Tuesday as results became clearer. INDA Mountain 5D The popular iShares India Index Fund fell sharply in the day after this week’s election. However, many investment experts who closely watch India do not think that Modi’s party’s poor performance will do much harm to economic growth. “India is not new to the concept of coalition government and has seen stable coalitions in the past,” writes Bank of America India economist Aastha Gudwani. Of course, within a coalition, consensus building can delay major explosive reforms, but not derail them.” in a note dated June 5. Angus Shillington, deputy portfolio manager for the emerging markets practice at VanEck, said Modi may have “overplayed his hand” in this election, but That probably won’t affect the economic story, at least in the short term. “There are a few [stocks] Shillington told CNBC that those are closely related to him that we would never have covered in the first place, but I think the broad themes of where a foreign investor wants to commit which “did not change significantly”. “We had what I call a false breakout, but not a full breakout,” said Adam Turnquist, chief technical strategist at LPL Financial. We look at technical indicators such as the Nifty Fifty index” of Indian stocks. Mexico South of the US border, a similar situation occurs where the candidate is popular, Turnquist said. won, but the margin was a surprise. Claudia Sheinbaum won the presidency, according to her mentor Andres Manual Lopez Obrador. But the Morena party’s performance was stronger than expected and could make it worse. The party achieved a large enough majority in the legislature to pass initial constitutional changes. The iShares MSCI Mexico ETF (EWW) fell 10% on Monday after initial election results and a sharp drop in the peso. against several major currencies. Morgan Stanley’s Nikolaj Lippmann downgraded Mexico to equal overweight in the firm’s Latin America model portfolio after the election fell 10% this week, according to Arif Joshi, a portfolio manager with Lazard Asset Management’s emerging markets debt group, depending on the outcome of the election. exactly how many seats the ruling party controls. Joshi said that Sheinbaum appeared more market-friendly than his predecessor but that the scale of the victory could allow Lopez Obrador to push through a broad reform package in September, when a new but general legislature is inaugurated. The system has not changed hands yet. “It was an anxious time that if he wanted, he could get that whole 20-point package through Congress,” Joshi said. That’s what we’re concerned about. We will have a lot less to worry about when Claudia takes over.” “Once you overcome that risk, then you have a risk in the US election,” Joshi added. From now until November 5, there are mostly potential negative risks in Mexico.” Even if the party does have a supermajority in the legislature, it remains unclear whether it will be able to fully implement its plans, including institutional changes and spending expansion. society. “My hunch is [the proposals] Polina Kurdyavko, head of BlueBay emerging markets at RBC Global Asset Management, said it is probably less likely to materialize because the current government must understand that fiscal prudence is one of the fulcrums. for Mexico. Given their losses since the election, the price chart is not encouraging, Turnquist said: “That could be considered a pretty big breakdown. You have a gap below the 200-day moving average. I think when you look at MSCI Mexico, for example [index], you could form the basis for a retest of the 2023 low,” Turnquist said, although the outcome remains unclear and economic changes in Argentina under president Javier Milei may not have an impact yet. full. And for investors in emerging markets funds, even the positive developments in some of these countries may be overshadowed by what happens in China a huge weighting so it will boost the emerging market index quite a bit. … You can have very different views in emerging markets, but when you look at it overall, China is clearly very important,” said Alejandra Grindal, chief economist at Ned Davis Research. , said. The global interest rate environment is also a factor, as high interest rates in the US put pressure on emerging market currencies and could cause those countries to borrow or roll over old debt. become more expensive “For the EM recovery to continue, the Fed needs to keep up with what the markets are doing. “Certainly, some emerging markets have “gained a lot of street cred” by raising interest rates faster than the Federal Reserve as inflation flared in the wake of the pandemic, Joshi said, which could bring giving them more benefits. Grindal said — CNBC’s Michael Bloom contributed reporting.
