More than 70 countries and territories, representing 44% of the global population, will be electing their leaders in 2024. This group includes the United Kingdom, France, the European Union, and the United States. Discover how global elections can impact markets and long-term outlooks.
Labour Party triumphs in the UK
In the UK, after 14 years of Conservative governance, the Labour Party has secured a majority of 174 seats in the House of Commons. The political implications of this change will develop over time, but the market’s immediate reaction was positive. The primary driver of sentiment toward UK assets is the improving macroeconomic environment: growth is beginning to pick up, albeit slowly, inflation is behaving, and the Bank of England is expected to start cutting interest rates before the end of the year. The Labour Party’s victory is anticipated to support this positive trend, with policy stability being a key factor. Since the Brexit vote, policy uncertainty has hindered business investment. With a strong majority, the Labour government should be able to set and meet expectations throughout its term. With stability comes investment, especially when much of what is around you is still so uncertain from a political perspective.
European Elections: Stability and Challenges
The European Parliament elections resulted in minimal changes, with pro-European parties maintaining their vote share, simplifying the allocation of top positions. However, gains by the far right, especially at the expense of the Greens and ruling parties in France and Germany, have raised significant concerns across Europe. This shift suggests that Europe may need to moderate its green transition ambitions due to the reduced influence of green parties, high debt levels from pandemic spending, and increased defence spending amid rising geopolitical tensions. Additionally, the political stalemate in France, resulting in a hung parliament dominated by the far left and far right, and the weakened coalition government in Germany, are likely to delay essential structural reforms in these major economies. On a positive note, the absence of an outright majority for the far left or far right in France reduces the likelihood of sovereign debt market stress, as any coalition government will likely need to temper high spending ambitions to strike a deal with President Macron’s centrist party.
The U.S. Presidential Election: A Crucial Decision
The upcoming U.S. presidential election, featuring former President Donald Trump as the Republican contender and, Vice President Kamala Harris as the Democratic nominee, is shaping up to be a pivotal event with significant implications for financial markets. The election will determine whether the United States will continue in its role as the global economic hegemon and primary defender of the world order established since the end of World War II or take a more insular, isolationist, and protectionist turn. This matters greatly as much of the prosperity experienced over the past decade was built on the pillars of expanding democracy, respect for the rule of law, and treating global trade as something that could benefit all nations.
Harris’ nomination has invigorated the Democratic campaign with a fresh face, as many voters are eager for an alternative to another Biden-Trump rematch. She has strong fundraising capabilities and enjoys broad appeal among independent voters, particularly women. However, Harris faces challenges due to her liberal image and lack of executive experience, which could impact her appeal in swing states.
On the Republican side, Trump’s campaign is marked by a populist agenda, amplified by the nomination of J.D. Vance as his running mate. Vance’s critical stance towards Wall Street and big business suggests a shift towards more populist economic policies. Trump’s recent rhetoric indicates a willingness to engage with China under certain conditions, signaling potential changes in trade policy. However, his unpredictable nature and lack of detailed policy proposals leave markets guessing about the specifics of his economic agenda.
Financial markets are particularly sensitive to the outcomes of this election due to the stark contrast in economic policies between the two candidates. A Harris administration is likely to continue and possibly expand upon the Biden administration’s policies, focusing on progressive tax reforms, climate initiatives, and social programs. This could lead to increased government spending and regulatory changes, which may affect sectors like healthcare, technology, and renewable energy. Globalisation will be regarded with less suspicion. Conversely, a Trump victory, especially if coupled with a Republican sweep of Congress, could herald significant shifts in economic policy. Potential policy changes include increased tariffs, reduced immigration, widespread deregulation, and tax cuts. These measures are expected to stimulate short-term economic growth but could also increase the fiscal deficit and long-term debt. Markets might initially respond positively to tax cuts and deregulation, but concerns about fiscal sustainability and trade tensions could introduce volatility. The performance of the U.S. economy will remain a critical driver of capital markets, with fiscal and protectionist risks potentially impacting the longer-term outlook.
Preparing for a Dynamic Year
In summary, 2024 is a busy year for democracy. While some electorates opted for stability, others returned more nuanced results without significantly impacting markets. The U.S. election in November presents a complex landscape for financial markets. The contrasting policy approaches of Harris and Trump underscore the importance of monitoring election developments and preparing for a range of economic scenarios and long-term market outlooks.
Written by
Josef Portelli, CFA
Managing Director – ReAPS Asset Management Ltd
The information contained in this article represents the opinion of the contributor and is solely provided for information purposes. It is not to be interpreted as investment advice, or to be used or considered as an offer, or a solicitation to sell / buy or subscribe for any financial instruments nor to constitute any advice or recommendation with respect to such financial instruments. This article was issued by ReAPS Asset Management Limited, a subsidiary of APS Bank plc. ReAPS Asset Management Limited (C77747) with registered address at APS Centre, Tower Street, Birkirkara BKR 4012 is regulated by the Malta Financial Services Authority as a UCITS Management Company and to carry out Investment Services activities under the Investment Services Act 1994 and is registered as an Investment Manager under the Retirement Pensions Act.
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