Almost half the world’s population live in countries with national elections this year. What might that mean for equity markets?
Private banks are showing signs of optimism for equities going into the second half of 2024, despite geopolitical and election uncertainty.
It has already been a busy year for elections, with the French the latest to head to the polls, catching the eyes of markets.
By the end of 2024, more than 4bn people, representing nearly half the world’s population and 57 per cent of global GDP, will have participated in national elections across hemispheres, continents and countries.
“If we look back to 2023, we have the situation where earnings growth was coming from a very concentrated group of stocks, the US technology stocks, notably, not exclusively,” says Eleanor Taylor Jolidon, co-head of Swiss and global equities at Geneva-based Union Bancaire Privée (UBP), which has $155bn in assets under management. “This year, we would expect there to be many more sources of earnings growth,” she adds.
“In Europe, and notably in Switzerland, we've got quite a clear acceleration of GDP growth, which is expected and that supports earnings growth globally,” she says, claiming this will help broaden sources of earnings rather than being concentrated in the hands of a few companies.
This trend is linked to the opportunities that investors and companies see from artificial intelligence (AI), according to Ms Taylor Jolidon.
“We’re in a fairly constructive environment for equity,” she believes, with equity markets likely to rise a “little more”, but not to the same extent they did in the first quarter of 2024.
Electoral challenges
This year was always expected to be a year of challenges because of the plethora of democratic elections. While this may be exciting, Ms Taylor Jolidon admits it is not always as straightforward as it sounds. “Citizens may sometimes express themselves in a way which we’re not entirely expecting or maybe slightly destabilising for the status quo.”
There has been an increasing willingness to hold a “protest vote” in the European parliamentary elections, she says.
As the recent European Parliament (EP) elections approached, widespread concern grew about the expected advance of the far right across Europe. These expectations largely materialised, with the Rassemblement National (RN) in France, Alternative für Deutschland (AfD) in Germany, and the Freiheitliche Partei Österreichs (FPÖ) in Austria making particularly significant gains.
Ms Taylor Jolidon believes people fail to understand how the results of the European Parliamentary elections can “affect the lives of citizens of sovereign countries”, which has led to a “surprise” for markets coming from the French elections.
Despite this, some experts remain optimistic about the French market. “In any of the scenarios faced, we do not believe France will deviate from its budget constraints vis-a-vis the EU, and therefore, we reiterate that market fears of unorthodox policies and fiscal expansion are overdone,” says Zehrid Osmani, head of the global long-term unconstrained team at Martin Currie, an active equity specialist manager which is part of Franklin Templeton.
“This is creating a buying opportunity in French equities, given the sell-off ahead of this increased political uncertainty in one of the key EU member states,” he adds.
But he affirms that the French parliamentary elections shine further light on the “potential political risks” to take into account in the run-up to the French presidential elections of 2027 if the far-right RN party continues to gather strong electoral support and “should Macron not have a charismatic candidate to take over from him by then”.
When discussing the US elections, UBP’s Ms Taylor Jolidon believes both candidates will be fairly expansionary in terms of spending. “That sets up a very attractive situation for equity in terms of making available funds for investment,” she says.
