Beyond Bulls & Bears

Emerging Markets

Quick Thoughts: What happens when election results are unexpected?

South Africa, Mexico and India all had unexpected election results. Find out what this means for the markets from Franklin Templeton Institute’s Stephen Dover and Kim Catechis.

The South African, Mexican and India election results were all different than the pundits predicted.

In South Africa, the African National Congress (ANC) party, the incumbent that has ruled for 30 years, fell short of a majority for the first time. The South African rand fell along with the country’s stock market, as investors began to consider the implications of the ANC being obliged to form a coalition with less market-friendly opposition parties. Eighteen parties won seats in parliament, so the range of potential dance partners is wide. The market’s preference is clear, but the ANC’s is not, so this becomes a binary outcome: If international investors see the match they like (a coalition with an orthodox economic policy platform), they will continue to invest in the country and potentially even reduce the prevailing risk premium. If there is a coalition with the less market-friendly parties, investors will probably sell down their positions.

For the wider world, an ANC-MK (uMkhonto we Sizwe)-EFF (Economic Freedom Fighters) coalition should be expected to tack much closer to China and the other BRICS countries (Brazil, Russia, India, Iran, Egypt, Ethiopia and the United Arab Emirates), with predictable impacts on trade and the economy. It will serve to accelerate moves underway in the United States to remove preferential trade status from South Africa via the US-South Africa Bilateral Relations Review Act.1 This potential coalition’s anti-immigrant2 platforms will also have a direct impact on neighboring African economies that have come to rely on remittances from their citizens working in South Africa, particularly Zimbabwe and Mozambique, who supply 60% of migrant workers.3 For Zimbabwe, remittances account for 11% of gross domestic product (GDP).4

In Mexico, the dominant Morena party coalition won, but much more decisively than the polls had indicated, triggering a selloff in the peso and the country’s stock market. The reason for the selloff is that this win was so big that it opens a path for the governing party to make changes to the Mexican constitution, and Morena has made no secret of its intention to erode certain key institutions, such as the Electoral Commission and the Judiciary, and commit the country to a degree of social spending that may become unsustainable in the future.

The peso and the stock market fell on the news, as investors grasped the enormity of these potential changes, which could arguably alter the country for a generation. In practice, we do not yet know the degree of commitment of new President Claudia Sheinbaum to these reforms, but we do know that the new Congress will sit in September, and she will take over in October. This means that outgoing President López Obrador (or AMLO as he is known) has one calendar month to push through as much of his agenda as he can.

Logically, there will be an uncomfortable wait while constitutional experts calculate the time needed to push through these reforms. Aside from that, the continuity suggested by Sheinbaum’s win is good for the consumer and service sectors. A little encouragement from the new president should result in a tangible boost in foreign direct investment (FDI).

Beyond Mexico, these possible constitutional reforms could change the business environment in Mexico, with an adverse impact on FDI flows and causing the country to miss out on its potential gains from the global supply-chain repositioning. For neighboring countries to the south, the push factors fueling migration, such as crime, unemployment and poverty are too strong to resist, and Mexico is the only channel to get to the United States. Past administrations have made common cause with the United States, building fruitful relationships. AMLO did not. Much will depend on President Scheinbaum, especially at a time of US assertiveness at the border.

In India, the Bharatiya Janata Party (BJP) juggernaut fell short of a working majority, meaning that incumbent Prime Minister (PM) Narendra Modi will have to cut deals with coalition partners for the first time. In Indian politics there is a long history of minority governments being held to ransom by their often-competing interests with coalition partners.

The BJP lost no time in announcing a pact with its partners in the National Democratic Alliance (NDA) to form a coalition government, enabling Modi to maintain his PM role. The style of government may change to be less centralized, as these parties now have a golden opportunity to maximize their influence on the next government. The expectation is that the overall policy direction remains steady, focusing on building up the manufacturing sector via attracting FDI, trying to position India as a player in the global supply chains, especially for the electronics sector. Public sector spending on infrastructure will likely slow and there will be a renewed effort to address the demands of rural areas—where the BJP’s support was below expectations in this election.

For investors who were expecting a turbocharged, business-friendly reform program, this is a disappointment, but the muted reaction from the currency markets implies to us that the show will be back on the road, perhaps more as a function of consensus than in recent years. It means big reforms are much less likely, so we anticipate share-price appreciation will likely be more directly tied to earnings growth.



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1. Source: H.R.7256 –US-South Africa Bilateral Relations Review Act. US Congress. March 21, 2024.

2. Many South African parties have explicitly used anti-immigration rhetoric in this election campaign. Jacob Zuma’s MK has been particularly vocal, but the ANC has also announced measures to deport immigrants. Source: “Mandela’s vision of Black unity fades as South Africa closes door to migrants.” Reuters. May 23, 2024.

3. Source: “Migration Profile Report for South Africa – A Country Profile 2023.” Stats South Africa. March 26, 2024.

4. Source: World Bank Data as of 2022, accessed June 5, 2024.

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