In 2024, roughly half of the world’s population will take to the polls to vote in an election. It’s an unusually high number and so much change on the horizon can create uncertainty in myriad different ways.
The simple fact that so many countries could go through political change means that stock markets could be affected, though some of the elections could have a greater impact than others.
Read on to learn how general elections around the world might affect your portfolio this year.
Around 60 countries will hold a general election at some point in 2024
So far this year, Bangladesh, Taiwan, El Salvador, Pakistan, and Indonesia have held elections, and in the next few weeks Russia, South Korea, Ukraine, and Panama are due to hold theirs. Later in the year, Mexico, the European Parliament, and the US are due to hold elections, with the UK, India, and South Africa among those expected to hold a general election before 2024 comes to an end.
According to a report by Reuters, the countries holding elections this year represent around 60% of the world’s total economic output, and over half its citizens. The report said that some elections could have a more significant impact on markets than others, notably the following.
Russia
Putin could reveal further details about his plans in Ukraine during the campaign, though he is highly likely to secure another term. Polls suggest he has an 80% approval rating among the Russian population.
European elections such as Austria, Portugal, and the European Parliament
There is a possibility that Eurosceptic parties could make gains. If this happens, Italian stocks and bonds, which have been Europe’s top performers recently, could suffer.
US
Despite ongoing legal battles, Trump looks set to secure the Republican nomination, so we could see another Trump versus Biden election battle. Last time this happened in 2020, it led to significant civil unrest in the aftermath of the result.
Investors may be more cautious given the two nominees’ differing policies on oil, spending, and relations with China.
UK
After a couple of years of stagnation in the economy as well as market turmoil following Liz Truss’s disastrous mini-Budget, any unexpected spending pledges could worry investors.
Significant global events may not have a long-lasting effect on stock market returns
A recent Morningstar report refers to a phenomenon known as “event risk” in relation to the uncertainty posed by the elections in 2024. Since there could be a significant shift in policy depending on the outcome of the elections, markets might become more uncertain over the coming year or two.
So, in the weeks and months preceding the major elections, you might notice some fluctuations in the value of your portfolio.
It may be reassuring to know that, historically, any volatility on the markets that is caused by world events is usually short-lived.
The Morningstar report shared how the S&P 500 performed in the short-, medium-, and long-term aftermath of 20 major world events, such as the Brexit vote in the UK, the Lehmen Brothers’ collapse, and the US withdrawal from Afghanistan to demonstrate this.
On average, the index fell by 3% within 1 month of a major event, recovering by 1.4% within six months and 2% within a year.
The graph below further demonstrates how historical world events have affected the growth of the FTSE 100.
Source: The Guardian
Past performance is no guarantee of future returns, but understanding past trends can help you to put the potential impact of future events into perspective.
Just like other world events, elections rarely have a long-term effect on stock market returns
Closer to home, you may be wondering what a UK general election could mean for your investments. The good news is, much like the world events mentioned in the Morningstar report, previous general elections in the UK haven’t had a long-lasting effect on markets.
Interestingly, the FTSE 100 has reacted differently to past general elections depending on how predictable the outcome is. Data from Schroders shows that the index rose when the outcome was more predictable, and fell if the outcome was unpredictable.
Source: Schroders
Regardless of how the election affected the index, though, returns tended to continue the trend they had been experiencing prior to the election within six months of the result.
It’s sensible to avoid making changes to your portfolio purely in anticipation of the elections
While the elections taking place this year could affect stock market returns, it’s important to keep your personal goals and circumstances in mind before making any changes to your portfolio.
It’s impossible to predict exactly what will happen on the markets, so moving your money in anticipation of the elections to try to avoid potential losses is purely speculation.
In the long run, if you make changes that aren’t aligned with your goals and risk tolerance, you could do more harm than good to your overall wealth.
Get in touch
If you’re concerned about how the upcoming elections around the world might affect your investments, we can help.
Please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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