Former US President Donald Trump at a rally in Georgia.

Libertarian Javier Milei in November won Argentina’s presidency after promising to ditch the peso for the US dollar, abolish the country’s central bank, and slash public spending and taxes – hence the chainsaw at rallies.

The obstacles confronting the ’anarcho-capitalist’ include inflation of 143 per cent, no foreign reserves, barren public finances and a tortured economy. The onetime legislator, who lacks executive experience, is handicapped in fulfilling his campaign pledges in that his protest La Libertad Avanaza party only holds 39 of 257 seats in the lower house and just eight of 72 in the upper house.

Yet investors, fed up with Milei’s mostly leftist (Peronist) predecessors, were excited by the rabble rouser’s larger-than-expected winning margin of 56 per cent to 44 per cent in the runoff. The US-listed Global X MSCI Argentina ETF jumped a daily record 12 per cent. Argentine dollar bonds climbed and local stocks gained, even if the seemingly doomed and worthless peso sagged.

Few Australian portfolios were likely ‘long’ Argentina ahead of Milei’s victory. But the episode reminds that elections can shake financial markets.

Investors might keep this in mind throughout 2024 because about 40 legislative and presidential elections are due to be held (Bloomberg’s count). Austria, Bangladesh, Belgium, the European Union, Finland, India, Indonesia, Mexico, Pakistan, Portugal, Russia, South Africa, South Sudan, Taiwan, Tunisia, the UK, the US and Venezuela are among those due to, or are likely to, hold elections next year. The key showdowns shape as pivotal moments for investment markets.

One of these is the presidential poll in Taiwan on January 13. The problem is that the candidate China least wants is favoured to win. An emphatic triumph for Vice President Lai Ching-te of the nationalistic Democratic Progressive Party could prompt Beijing to intensify pressure on Taiwan.

‘Beijing’s bête noire’

Historian Niall Ferguson warns Beijing might use such a result as a pretext to blockade the island, as part of a strategy to assume control of Taiwan without resorting to warfare. “Lai is Beijing’s bête noire because of remarks he made in the past that implied support for Taiwanese independence,” Ferguson says. Beijing has always said it would invade Taiwan if Taipei made any move towards independence. In November, Chinese President Xi Jinping warned US President Joe Biden at their summit that China’s “peaceful reunification” with Taiwan was “inevitable”.

In an effort that would have lowered this risk of a crisis with China, Taiwan’s two biggest pro-Beijing parties in November tried to form an alliance against Lai. But the endeavours of the Kuomintang and Taiwan People’s Party collapsed over which party’s leader would be the presidential and vice-presidential candidate.

Asia’s other notable poll for investors is India’s general election to be held over April and May. India has attracted more foreign investment than any other emerging market this year, according to Bloomberg data, due to robust economic growth, its expanding consumer class and China’s fading pulling power. An unexpected loss for pro-business Hindu-nationalist Prime Minister Narendra Modi could rattle emerging markets. Another focus for emerging funds in May will the elections in troubled South Africa. The African National Congress could struggle to lengthen its 30-year time in charge.

In Europe, Russia’s presidential election on March 17 should see Vladimir Putin win a fifth term, to ensure global political tensions stay high. In elections for the European Parliament in June, right-wing parties out to rattle the EU’s foundations could shine, as happened in the Netherlands parliamentary elections in November when Geert Wilders’s anti-EU, anti-Islam Party for Freedom unexpectedly won the most seats. Another such ‘political earthquake’ might make investors jittery about the eurozone’s long-term future. A UK election is almost certain next year even though Prime Minister Rishi Sunak could delay a poll until January 2025. Trailing Labour by 20 points, Sunak’s Conversative party is likely to lose power after 14 years in office.

Aussie poll possible

An Australian election is possible in 2024 if Prime Minister Anthony Albanese opts for an early poll. Investors might have to ponder an outcome where the Greens, Teals and independents hold the balance of power in both chambers.

In the US elections in November, no one could say the re-election of Donald Trump as president would be a surprise. Trump’s travails before the US legal system — including Colorado’s decision this week to remove him from the state’s main ballot — look unlikely to stop him winning the Republican nomination. Polling has him ahead of Biden, his likely opponent.

The election is notable for shaping as a brawl between two aged and unpopular candidates, the drag Vice-President Kamala Harris imposes on Biden’s chances, and the probability that independents will affect the outcome. Even Trump allies are concerned a reinstalled Trump, who inflamed trade wars as president number 45, could upend the US-led global trading system by imposing a tariff of 10 per cent on all imports.

Market shake-ups

Trump opponents fear much worse. They anticipate the return of an empowered authoritarian who might replace the ‘deep state’ with loyalists, damage US democracy by subverting constitutional checks and norms, and impede the climate fight. They might not accept the result. Trump hardly comforts his “vermin” opponents when he tells supporters that as number 47 he will be “their retribution”. The danger is that violence erupts, given that surveys show about 25 per cent of Americans think it’s valid to resort to force ‘to save our country’.

Many warn investors are not factoring in the election risks of 2024. It’s not that they haven’t or won’t, it’s more they can’t. Elections are those known risks that fall outside the scope of valuation models. Election-driven market shakeups are thus likely over the coming 12 months.

To be sure, many other events could have a bigger sway over asset prices in 2024. Posturing adding to uncertainty before polls could trouble investors more than the results.

But from wherever the worries about elections stem, what a headache for investors. Unlike the rally on Milei’s victory, reactions on asset markets linked to unpredictable election results are sure to reverberate through Australian portfolios in 2024.

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