Fast reading
- India’s ruling BJP failed to secure an overall single-party majority and Prime Minister Narendra Modi will now need to form a government with the support of coalition partners.
- Claudia Sheinbaum, from the left-wing Morena party, won Mexico’s presidential election by a landslide to become the country’s first female president.
- The ECB cut its benchmark rate by 25bps in line with expectations.
The results of the 2024 Indian general election, which saw 640 million people vote, were released on Tuesday, with the outcome surprising many investors.
The ruling Bharatiya Janata Party (BJP) – which was widely forecast to secure a landslide victory – fell short of an overall single-party majority. Prime Minister Narendra Modi will now look to form a government with the support of coalition partners as he begins his third term in office.
The unexpected result led India’s benchmark Nifty 50 Index to plunge almost 6% on Tuesday, before recovering ground later in the week.1
“Markets do not like uncertainty,” says Kunjal Gala, Head of Global Emerging Markets at Federated Hermes Limited. “Almost overnight the case for India, which was super certain, has become less so.”
The shape of the next government – including the selection of ministers and its policy priorities – will be crucial to assess the country’s future macroeconomic trajectory, Gala adds. “Reforms are crucial to realise the country’s potential and investors’ lofty expectations may have to reset.”
Figure 1: Indian general election result
Markets do not like uncertainty. Almost overnight the case for India, which was super certain, has become less so.
History made
In a big week for democracy in emerging markets, Claudia Sheinbaum, from the left-wing Morena party, won Mexico’s presidential election to become the country’s first female president. Morena’s landslide win saw the ruling party secure a supermajority in Congress, raising concerns over possible constitutional changes under the new government.
“Morena presented 20 constitutional amendments back in February, which were blocked but now have a much higher probability of being approved. It is still unclear if Morena will push these changes, but the loss of checks and balances will be a concern,” says Aldo Ruiz, Senior Analyst, Global Emerging Markets at Federated Hermes Limited.
“The market is pricing a moderate scenario so, if the amendments are approved, there will be another adverse reaction in the market and negative implications for investments, GDP growth, and FX volatility,” Ruiz adds.
Mexican stocks dropped by over 6% on Monday, with the S&P/BMV Total Mexico Index experiencing its worst day since the Covid-19 pandemic (see Figure 2).2
The Mexican peso lost ground following the election result and government bonds also fell, says Jason DeVito, Lead Portfolio Manager, Emerging Markets Debt at Federated Hermes. “But Mexico’s state-owned petroleum company Pemex performed well this week as there is a clear understanding that it will remain a key symbol of Mexico and will continue to be supported by the new government,” De Vito adds.
Figure 2: EM elections – Market movements
Elsewhere this week...
The European Central Bank (ECB) cut rates in line with market expectations on Thursday afternoon, bringing the benchmark borrowing rate down to 3.75% from its previous record-high 4%. The cut is the first in five years, with the central bank indicating it had made headway in its effort to tame stubbornly high inflation in the eurozone. It’s the second major global economy to cut rates in recent weeks, following Canada, with the UK and US expected to follow before the end of the year.
“From the banks’ perspective, a single 25bps move will not set free the animal spirits of both corporates and households,” says Filippo Alloatti, Head of Financials – Credit at Federated Hermes Limited, notes.
“The euro area loans growth remains anemic at best, after months of flat or negative lending activity. Only a protracted easing cycle (100-125bps) over the next 18 months can assist a recovery in loan activity, supporting banks’ lending revenue.”
To read more about global elections in 2024, click here.
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1 Bloomberg, as at 6 June.
2 Ibid.
