What elections mean for markets this year

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Katie Martin (0:37)

Pushkin.

The big risk everyone said for 2024 is this pesky thing called democracy. We've got elections all across the globe this year, and now we're really starting to see the effect on markets. We had elections in Mexico, which have hammered the peso.

In India, it's been a real roller coaster. Coming up, we've got the UK and our bigger cousin, the US. So in today's podcast, we wade into the hostile waters of politics and ask, can you trade elections? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm markets columnist Katie Martin, and I'm joined by Robert Armstrong, the man behind the Unhedged newsletter.

Robert Armstrong (1:20)

Katie, I've chosen this venue in this moment to announce that I am running for president of the United States. And let me tell you my platform, Katie.

Katie Martin (1:32)

Cool, yeah, yeah.

Robert Armstrong (1:33)

The Armstrong platform is, when it comes to politics, you cannot outsmart the markets. There is no geopolitical alpha, folks.

Katie Martin (1:46)

Is this a winning platform? I don't know that anyone's gonna vote for you, Rob. This could be bad for you.

Robert Armstrong (1:52)

I'm really good on TV, Katie.

Katie Martin (1:57)

Better than on podcasts. I mean, you don't write about politics that much.

Robert Armstrong (2:01)

No, I try to avoid it. I try to avoid it at all costs.

Katie Martin (2:06)

Up until your previously unknown run for US president. I mean, why is that? I mean, is it because you're in roughly the same camp as I am, which is ignore politics, markets do their own thing anyway?

Robert Armstrong (2:17)

Point number one is it's very hard to predict how markets are going to respond to political changes.

And the reason that's true is not because markets don't respond to politics. It's actually because they incorporate political information quite quickly and quite easily. In other words, markets are about as smart about the economic consequences of elections as it's possible to beat. The information that is available is kind of very often in the price to begin with. And if there is a big bit of political news and markets do move, it's because there was a genuine surprise that might have been difficult or even impossible to anticipate.

Katie Martin (3:05)

Let me tell you about some of those surprises, Robert Armstrong. So first of all, we had elections the other day in Mexico. We have a new president in the form of Claudia Scheinbaum, the country's first female president. Now, I don't think it's because she's the first female president, but markets no likey. Mexican peso is off pretty hard. 3% or so stocks took a 6% hit.

On the first day after the vote, I mean, to your mind, Rob, why is it that markets dislike this lady so much?

Robert Armstrong (3:32)

According to the Financial Times, she won with a greater majority than expected, which means that she and her party, which was the ruling party before, might now be able to have a little fiddle with the constitution.

And if there's one thing markets don't like, is people running around changing the rules. This is a slight exaggeration on my part, but I think that's basically the story. Can they change the way judges are elected? There's something in there about the minimum wage, inflation adjustment that they could change, et cetera, et cetera. So people are worried about institutional change driven by a big majority.

Katie Martin (4:14)

Yeah, but the market really didn't see this one coming. They saw her coming, but they didn't see quite the scale of the victory.

And then just like a day or so later, India is a really tricky one to get your head around. So first of all, we had the exit polls saying current Prime Minister Narendra Modi, you know, he is Indian politics. He has been Indian politics for such a long time, for years and years. The exit poll said he was gonna be back as Prime Minister and his party is gonna have a majority, and stocks hit a record high. Hooray!

Robert Armstrong (4:44)