Emerging Market elections renew three reform mandates

Key takeaways

• Elections in Indonesia, South Africa and India have handed their democratically re-elected leaders mandates for continued reforms
• All three promise further structural reforms that should provide boosts to GDP
• In the current environment, we expect the USD to remain resilient against emerging currencies
• The US/China trade risk overrides the recent emerging economies’ positives. Once the US/China dispute is resolved, there will be opportunities for investors to re-build their positions

A series of elections in emerging markets have demonstrated some resilience as three incumbents were re-elected in recent weeks. Indonesia, South Africa and India have all democratically returned leaders with majorities large enough to ensure they can continue reforms to their economies.

Each of the three democracies has delivered an opportunity for change. That contrasts with rising tensions in the European Union and a lack of coordinated political vision for the bloc, suggesting that once global tensions over trade are resolved, there is plenty of potential for emerging market optimism.

17,000 Indonesian islands

Indonesia’s President, Joko Widodo (known as “Jokowi”), secured a second five-year term last month, on a pluralist, secular platform with a 55.5% share of the 154 million votes cast across 17,000 islands. In a repeat of the aftermath of the 2014 election, the opposition leader challenged the victory, and there were riots in Jakarta, the capital. Nevertheless, the country’s electoral agency said there is no evidence of fraud in the world’s third-largest democracy.

South Africa’s reform window

Cyril Ramaphosa, the incumbent African National Congress President, was re-elected by his party last week following the 8 May general election victory. While the ANC’s 57% of the vote fell to its lowest share in the post-apartheid period, it hands Ramaphosa a mandate to change the constitution to allow for land expropriation without compensation and tackle the corruption that forced his predecessor from office.

Modi’s landslide mandate

India’s Hindu nationalist Prime Minister Narendra Modi won a second landslide in the world’s biggest-ever democratic exercise last week, based on promises to take a harder line on national security and a pro-business agenda.

Trade tensions trump the positives

With strong emerging market fundamentals in place including stable currencies, favourable oil prices, combined with the US Federal Reserve’s dovish stance, it has made sense for investors to look for higher yields by including emerging market assets (with the notable exceptions of Argentina and Turkey) in a portfolio.

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