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Impact of Recent Elections on Investments in Emerging Markets such as India and Mexico



Emerging markets investors have had an eventful week as surprising election results in countries like India and Mexico have caused stock market fluctuations. In India, Prime Minister Narendra Modi declared victory in his re-election campaign, but his party lost seats in parliament, leading to a 6% drop in the iShares MSCI India ETF (INDA). However, many experts believe that the underwhelming election results will not have a significant impact on India’s economic growth, as coalition governments in the past have still been able to implement reforms. Indian stocks have since rebounded, and from a technical standpoint, the rally appears to be intact.

In Mexico, Claudia Sheinbaum won the presidency, but the performance of the Morena party was stronger than expected, leading to a 10% drop in the iShares MSCI Mexico ETF (EWW). The impact of the election could linger for months, depending on the ruling party’s majority in the legislature. Analysts are cautious about the potential for broad reforms that could be pushed through by the party, raising concerns about fiscal prudence and increased social spending. Despite Mexico equities clawing back losses, the price chart remains concerning, with a possible retest of 2023 lows looming according to experts.

Other emerging markets are also facing political uncertainties, such as South Africa heading towards a coalition government and economic changes in Argentina under President Javier Milei. China remains a significant driver of the emerging markets index, overshadowing positive developments in other countries. The global interest rate environment, particularly in the U.S., also plays a role in influencing emerging market currencies and borrowing costs. Investors are keeping a close eye on the Federal Reserve’s actions, with expectations of a rate cut in September potentially impacting emerging markets.

Overall, while recent election results in India and Mexico have caused short-term market turmoil, experts believe that the broader economic stories in these countries remain intact. Political uncertainties and global factors like interest rates and China’s influence continue to shape emerging market investing strategies. As investors navigate these challenges, staying informed about specific country developments and broader market trends will be crucial for making informed investment decisions in emerging markets.

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