Political horse races to keep market players on their toes this year
TOKYO -- Call it a global election year. National votes will be held this year in countries accounting for nearly half of the planet's population, including a number of key emerging nations. The results could have big implications for the financial markets and a recovering world economy.
Emerging economies had a tough time last year. In May, the suggestion that the U.S. Federal Reserve would start tapering its quantitative easing triggered outflows of investment money from rising nations. Resultant declines in emerging currencies drove up import prices, fueling inflation concerns. Some nations' central banks were forced to take countermeasures, such as raising key interest rates.
Now Thailand, which has been shaken by anti-government demonstrations, has an election coming up. So do Indonesia, South Africa, India, Turkey and Brazil. The outcomes may have drastic impacts on those investment flows.
India's national election, scheduled for this spring, will be a particular focus given the chances of a power transfer. Narendra Modi, the chief minister of the northwestern state of Gujarat and a member of the opposition Bharatiya Janata Party, is considered the leading candidate to become the next prime minister.
"Modi has been credited with improving investment conditions," said Takahide Irimura, deputy chief of investment information at Kokusai Asset Management.
Manmohan Singh, the incumbent prime minister, said Friday that he will step down after the vote, naming Rahul Gandhi of the ruling Congress Party as his successor. Whoever takes the helm will face the huge challenge of shoring up India's promising but troubled economy.
While Singh called for economic rejuvenation, proposed measures generally ended up watered down. "It is uncertain whether the next prime minister will be able to overcome vested interests," said Takashi Kodama, head of Asia research at the Daiwa Institute of Research. "If expectations are not met, the reaction will be serious."
New faces, old faces
Indonesia, too, is set for a leadership change this summer as President Susilo Bambang Yudhoyono is constitutionally barred from seeking a third five-year term.
All eyes are on Jakarta Gov. Joko Widodo, who is expected to run for president under an opposition party's banner. While ex-military officials tend to rise high in Indonesian politics, the governor known by the nickname "Jokowi" is a former businessman.
Thanks to Indonesia's economic development, income levels there have increased. Today's citizens may prefer a leader like the governor, who is seen as closer to the general public, than a strongman with a one-track mind for high growth. Put another way, a victory by the governor would signal an end to Indonesia's developmental dictatorship and take the country into new political territory.
Turkey will hold its first direct election for president between July and August. Nothing is set in stone, but there is speculation that Prime Minister Recep Tayyip Erdogan -- who has led Turkey to rapid economic growth over the past decade -- may seek the largely ceremonial presidency because he faces a term limit in 2015. The Turkish currency, the lira, has come under strong selling pressure in anticipation of political instability.
Brazil is also struggling with currency depreciation and other tough economic conditions. These hardships will provide the backdrop for a presidential election in October.
"There is a risk that President Dilma Rousseff will resort to populism, such as a spending increase, before the vote," said Tamako Nishikawa, senior analyst at the Mizuho Research Institute.
Meanwhile, election-related confusion is expected in Thailand, where voters are slated to go to the polls next month. Tensions could also heat up in Egypt as the country heads toward a vote, likely in summer.
Including the U.S., which will hold midterm congressional elections, and a European Union parliamentary poll, a Nikkei Veritas survey shows ballots are set to be cast in nations with 45% of the world's people. From the perspective of the financial markets, there will be plenty of political factors and risks to monitor.