The Year Of Elections

by | Apr 15, 2024 | Commentary & Insights | 0 comments

2024 has been dubbed the ‘year of elections’ with more than 80 nations, and over half of the world’s population, heading to the polls over the course of this year.

So far, elections have already taken place in countries such as Indonesia, Taiwan, and Pakistan as well as the recent Russian “election” which secured Vladimir Putin another 6 years in power. Looking ahead, there are votes still to take place in important regions such as India, the European Union, the UK, and the United States.

Though here in the UK our general election will be drawing the most attention from the public and press, the wider impact on global financial markets and portfolios will be relatively limited. Where general elections tend to have the most bearing for us is surrounding tax rules. Therefore, should we see a change in government, we would expect more tax changes which in turn creates new challenges and wealth planning opportunities.

Taking a more global view, it is the US presidential election that is due to take place in November that will generate the most speculation, research, and commentary. This is logical given that the US economy is the world’s largest and its stock market accounts for over 50% of the world’s equity market.

Though the policies implemented by different parties and presidents can shape how the US economy looks moving forwards, the research shows that the impact of these adjustments on financial markets is relatively muted and often down to factors outside of their control.

Interestingly, research by JP Morgan Asset Management highlights that, while equity markets tend to exhibit lower average returns and higher volatility in election years vs non-election years, these statistics are skewed by events that have happened to coincide with elections. Most notably the bursting of the bubble in 2000, the Great Financial Crisis in 2008, and the Covid-19 pandemic in 2020.

As shown below, higher volatility during election years is more down to economic events rather than the elections themselves.

US equities realised volatility (%, 52-week standard deviation)

Source: FactSet, S&P Global, J.P. Morgan Asset Management. Election years are US presidential election years. Election and non-election years are the average annual returns from 1932 onwards. Data as of 29 February 2024.

Ultimately, we would consider making investment decisions on the outcomes of binary events such as elections a fool’s errand. Even if you correctly predict the outcome, the chances of correctly foretelling the market’s reaction are slim. Instead, it is important to have an investment strategy that allows you to weather such events on the way to benefiting from the long-term returns markets offer.

Written by Jonty Brooks

General Disclosures: This article is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.

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