Spate of Mexico, India, and South Africa Elections Spark Uncertainty in Emerging Market Equity & FX Prospects

Though emerging markets have weathered a number of national elections throughout 2024, the most recent trio of contests in Mexico, India, and South Africa have heralded the most profound re-alignments in their respective jurisdictions. While Mexico’s results saw their top political party consolidate its control over the country’s congress, India and South Africa’s ruling parties each lost their long-held parliamentary majorities. 

Budgets and deficits, as well as the growth trajectory of these nations, could be materially impacted by the ramifications of these elections. Those changes could run downstream to their corporations and currencies and would be expected shift valuations in equity and foreign exchange (FX) markets as public policy is reshaped around new political realities.

Related ETFs: iShares MSCI Emerging Markets ETF (EEM), iShares MSCI Mexico ETF (EWW), iShares MSCI India ETF (INDA), iShares MSCI South Africa ETF (EZA)

Emerging market currencies have languished under the strength of the US Dollar this year and that pattern is expected to continue, according to a recent Reuters survey of over 50 foreign exchange strategists. That assessment showed nearly all emerging markets currencies were forecast to weaken going forward, largely due to elevated US real yields, but an injection of uncertainty in public policy and governance should also play a role. Emerging market shares have broadly trailed the S&P 500 significantly in the year-to-date period, continuing a trend of persistent underperformance that has lasted more than a decade.

A round of national elections in India, South Africa, and Mexico have roiled local stock and FX valuations. A laundry list of EMs including Taiwan, Pakistan, Indonesia, Russia, Turkey have held nationwide elections this year, but results in those contests failed to yield any major changes or surprise analysts like the latest spate of results. None of these latest elections will lead to the unseating of any country’s current top parties, but the extension of a sweeping mandate by Mexico’s Morena party, taking control of both houses of the country’s Congress, stands out as the most disruptive element. That can be inferred by the country’s Peso leading a decline among 140 EM currencies tracked by Bloomberg with a -2.9% drop against the US Dollar yesterday.

Legislative dominance – which fell just short of a supermajority – will empower the new President, Morena’s Claudia Sheinbaum, to initiate the passage of new reforms to narrow the country’s budget deficit, which surged to 5.9% of GDP in 2024, from 4.3% in prior years under her predecessor and fellow Morena party member Andrés Manuel López Obrador. Despite achieving some success in raising tax income for the state, hiked-up expenditures during…