The line between economics and politics in emerging markets (EM) is becoming increasingly thin, particularly in countries with weaker institutional structures and stagnating growth. With several EM countries facing elections in the next 12 months, Eric Spencer, Senior Research Analyst on our Global Emerging Markets Equity team, weighs in on potential risks and opportunities.
1. Which elections are you watching most closely, and what implications could they have for EM investors?
We track political risk to help us assess the potential impact on foreign exchange, local-currency asset prices and the risk of broader social destabilization in each country. Overall, we expect election outcomes to skew in the direction of more growth-oriented policies and economic orthodoxy, which we would view as more favorable for emerging market investors.
We think Argentina may be on course for regime change. Opposition candidates have been performing well in the polls, which could lead to a reversal of unconventional fiscal and monetary policies that have produced devastating inflation. While the challenges are immense in our view, an opposition win in Argentina would mark a break from the so-called ``Pink Tide’’ of leftist victories in Latin America. We are optimistic on the prospects for real economic change in Argentina, where EM equity investors have been largely absent for the past decade. That said, the situation is, as usual for Argentina, very fluid and we are cautiously watching the recent rise of the right-wing populist candidate, Javier Milei, who has troublingly advocated for elimination of the central bank and broader adoption of bitcoin.