Elections

European assets are selling off as investors panic about the upcoming French election. Is this panic justified, and if so, for how long?

The new national unity government in South Africa creates a geopolitical opportunity that investors should not bet against in the short term. A broad-based rally is likely to unfold relative to other emerging markets. However, structural problems and distrust within the new coalition hold out significant risks over the long run.

Europe did not witness a major policy reversal. Inflationary pressures are coming down, enabling the ECB to cut rates and European states to maintain soft budgets. Geopolitical challenges ensure that European parties continue to cooperate on national defense, economic security, and energy security.

Prime Minister Narendra Modi won a third term and will become the third longest-serving prime minister of India. While investors responded negatively to the BJP’s loss of an outright majority, Modi and the NDA will continue to perpetuate the reforms they have already put into motion. The result also affirms that Indian democracy continues to thrive, contrary to the narrative that Modi had formed an authoritarian grip on the country, a view we always rejected.

Republicans are favored in the House and Senate even if they do not win the White House. A Democratic sweep is a 20% risk. The policy implication would be inflationary, but not so much as under a Republican sweep. Election uncertainty should increasingly weigh on cyclical and high-beta assets in the second half of 2024.