India/Mexico/South Africa Elections: Vox Populi Risk Returns

The people have now spoken in elections in South Africa, India and Mexico—three of the world’s most populous democracies and darlings of the EM asset class. In each case the verdict was broad political continuity. But the response from financial markets has been perplexing.?

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In India, Prime Minister Narenda Modi will go on to serve a third term as expected, but his BJP party has lost its majority and must serve in a coalition government. Opinion polls did not anticipate this. And markets did not like it. In this case, the failure to achieve a landslide has resulted in companies regarded as “Modi stocks” getting hit—a reminder of the downside risk of companies being closely linked with a “personalised” regime.?

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In Mexico, Claudia Sheinbaum, noted climate scientist, former Mayor of Mexico City, political protege of AMLO— as the outgoing president is known—and soon to be first female and first Jewish president, won a significant mandate with a 61% majority. Markets hated that too. One explanation is that traders reflexively dislike the idea of “another Latin American left-wing populist”. Another is that Sheinbaum’s majority in principle allows her the potential to change the country’s constitution.?

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In South Africa, markets have been more sanguine about the reduced support from voters from the long/ruling ANC, which although described as a “political earthquake” was roughly in line with polling expectations. The big question now will be the shape of the future coalition, which must be agreed and approved in parliament in roughly two weeks’ time.?

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Markets would prefer a coalition between the ANC and the pro-business Democratic Alliance, which has a good track record of running the Western Cape, but is known as a “white party”. But supporters of Jacob Zuma are unlikely to take his sidelining lying down, with the country bracing for civil unrest in the coming days.?

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But unless you are a currency trader who bet on polling accuracy against all evidence to the contrary (PQ Tip: polling margin of error in national elections is wide: 3-5 points on average), the implications for business and the international system from these elections are not as fraught as the market reaction suggests in our view.?

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As I said to Bloomberg's Chief Markets Strategist John Authers , if Modi is forced to moderate some of his more extreme nationalist policies due to serving in coalition, this is net positive for political stability.?

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In Mexico, the freakout over Sheinbaum is reminding me a lot of the market reaction to Brazil’s Lula 1.0 in 2002–who went on to govern from the centre and boost living standards (with the wind in his sails from commodities prices helping too). Continuing with the Brazil analogy, I think it is premature to view Claudia Sheinbaum as a Dilma Rouseff figure.

For South Africa, the stakes are arguably higher, with the country at more of an existential point than either Mexico or India, both of which?have moved further down the curve of their political and economic transitions. In this case, the 30-year hold on power of the country's first post-apartheid ruling party has largely failed to deliver on its promise and is now at the far reaches of its revolutionary mandate. A better question might be if South Africa has hit the bottom and the only way is up, or whether an extended period of infighting will now follow, further hampering the country's still- huge potential.?

With the re-balancing of the international system more relevant for business than at any time in recent memory, the amount of political capital for leaders, continuity of policy, quality of governance and democratic legitimacy with the voting public all carry significant weight, and these are the factors we will be watching most closely in the weeks ahead.?

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Rest assured that Beijing, Moscow and other states looking to undermine the G7 will be seeking opportunities to exploit disconnects and offer strategic support. One of the biggest consequences of 2024's Election Supercycle is the growing tension between maintaining market confidence and securing a mandate to lead. As Modi has now been told, more billionaires is not enough to maintain his hold on power indefinitely.?

A few words to close on the first U.K. debate last night, which no one would call a game-changer, though Prime Minister Rishi Sunak managed to hold on to his dignity and Labour candidate and favourite Keir Starner wobbled in response to pressure from his opponent on the likelihood of tax rises. With U.K. elections in less than a month, the question remains whether Labour secures a majorly or a super-majority.?

Fordham Global Foresight's Navigator Plus

Please check out our Navigator Plus video playbook addressing these issues plus thoughts on the likelihood of a ceasefire in the Middle East and the implications of the change in stance from the White House on Ukraine's use of U.S.-supplied long-range weapons.?

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I'll be back with more on EU Parliamentary elections and of course, we are available to brief your leadership team and clients in more depth.?

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All the best,

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Tina.?

?If You Needed Reminding , Markets Aren't the Voters

By John Authers

"Tina Fordham, the former Citi geopolitical strategist who now runs Fordham Global Foresight LLC, admits to being baffled: “These are three huge countries with huge economies and in each case we have a result that broadly confirms political stability, which is what we are all told that markets want. These results give us continuity in highly volatile political times. Could it be the scale of the polling error?”

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On Modi, she commented that “if he has to be a little less Hindu nationalist, that’s good… If it clips the wings of his grand projects, I doubt that bothers the market.”"

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