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What could this year’s global elections mean for investors?

02/04/2024

All eyes are on this year’s UK and US elections. However, these two global powerhouses are not the only countries to go to the polls in 2024. 

This year, a record 50 countries across the globe will be holding elections, with an estimated 2 billion people set to head out to vote. 

While some nations will no doubt welcome a change in Government, others will see this year as a time of significant negative political upheaval. The same goes for investors: for some, a change in government brings opportunities, for others, it could harm their portfolios.  

 

Uncertain about uncertainty

In some countries with 2024 elections on the horizon, it is already clear who the winner is likely to be. In others, things are far too close to call. 

In the US, for example, a March poll by The Economist put Joe Biden just one point ahead of Donald Trump.

The effect of political uncertainty in the markets was seen after the UK general election in 2010. Between May 6th when the election took place and June 6th the FTSE 100 fell by 4.04% as a result of the uncertainty around what the new coalition government would look like. When its make-up had been finalised, though, the FTSE 100 saw a gain of 12.57% between June and December. 

 

Could a change boost returns? 

Historically, in both the UK and the US, a change in government has been known to improve stock market performance. Data from AJ Bell shows that since 1962, the FTSE All-Share Index has risen by 12.8% in a year following UK general elections with a change in government. 

It is a similar picture in the US. Research from Morgan Stanley reveals higher total annual returns for the S&P 500 in election years when a Democrat was in office and a Republican was elected, compared with the election years when a Democrat was in office and a new Democrat was elected. 

Similarly, say Schroders, US election years that have a returning President are normally accompanied by lower returns across most major asset classes. 

However, investors should remember that uncertainty or the “wrong” election result does not automatically spell bad news for investors. The initial effects of an election will often be short-lived, and other factors – such as economic conditions, geopolitical factors and individual company performance – will also come into play. For those taking a longer-term view of investing, should the existence of an election year really come into the decision-making process? 

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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