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Coalitions, Compromises, Continuity, Chaos
Elections offer citizens the opportunity to turn the tides by prompting political, economic and social reforms. In the past week, the global stage witnessed the unfolding of three distinct electoral contests across various regions, each yielding results that may redefine the trajectories of the respective countries.
South Africa: Coalition Melting Pot
Outcome: For the first time since independence, the ruling ANC lost majority requiring the party to form a coalition government with other parties.
Market Impact: South Africa rand and bonds initially sold off as preliminary results of the election rolled in. The market remains volatile as clues surrounding potential coalitions emerge.
What’s next? The ANC announced it hopes to lead a “Government of National Unity” and is negotiating with various parties across the political spectrum with the goal of obtaining a broad majority. Political parties in South Africa are divided by stark differences in policy preferences, tumultuous historical relationships, and demographics; so any government combination is likely to be unpredictable and precarious.
India: Modi’s Last Dance
Outcome: Incumbent Prime Minister, Modi, won re-election for a third five-year term. Yet, Modi’s BJP party suffered a surprising setback, losing its outright majority in parliament.
Market Impact: Markets had high hopes for a National Democratic Alliance (NDA) victory, led by the BJP party, to deliver structural reforms. The election result, contrary to the Modi-sweep that exit polls forecast over the weekend, have incited volatility in the markets. Bonds and the rupee initially moved lower as shock of the results set in, but the market has since recouped some of its losses.
What’s next? The BJP party has lost its majority and will depend on allies to establish a coalition government. This marks the first instance in Modi’s ten-year leadership tenure where he lacks congressional support and may be forced into compromising on legislation, particularly concerning capital expenditures, manufacturing growth, and fiscal consolidation.
Mexico: AMLO Walked So Sheinbaum Could Run
Outcome: Claudia Sheinbaum, the hand-picked successor to outgoing President Lopez Obrador (often referred to as AMLO), won Mexican presidential elections in a landslide victory. The ruling Morena party won a congressional majority, likely allowing it to push through constitutional reforms.
Market Impact: The Mexican peso sold off by over 7%, local interest rates rose sharply, and credit spreads widened. Investors worry a Morena majority will lead to market-unfriendly policies, including structurally higher spending and constitutional reforms that could cement single-party rule for decades.
What’s next? Sheinbaum is expected to carry on with signature AMLO policies such as increased social transfers and direct government support to Pemex. She will also likely press ahead with constitutional reforms that would strengthen Morena’s control over electoral and judicial authorities, making it more difficult for rival political factions to compete for power. Her main challenges will likely be combatting spiraling violence, keeping Mexico’s fiscal deficit under control, and maintaining healthy trading ties with the U.S.
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