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The world is ushering in the largest "election year" in history! JPMorgan: The global economy and stock markets will be under pressure

Financial Associated Press, January 15 (Editor Liu Rui) 2024 is the largest "election year" in global history.

According to statistics, more than 50 countries and regions around the world will stage election dramas this year. Among them, elections in major countries such as the United States and Russia have affected the world's nerves. This year’s elections in various countries will cover nearly half of the world’s population, and are expected to be the year with the most elections and the broadest coverage of the population in history.

JPMorgan Chase wrote in a recent report that as we enter this "election year", elections in many countries are expected to have a significant impact on the economy and stock markets. The global economy is expected to face downward pressure, while stock markets are likely to exhibit more volatility.

Global economic growth is under pressure

In addition to the general elections that will be held in the United States and Russia in November and March respectively this year, the new European Parliament elections will also be held from June 6 to 9. British Prime Minister Rishi Sunak also recently revealed that his plan is to hold general elections in the second half of this year. In addition, many countries such as Mexico, Indonesia, and South Africa will also hold general elections this year.

JP Morgan strategists wrote in a report that four trends are likely to continue in the election results in many countries around the world - polarization, populism, democratic deterioration and geoeconomic fragmentation .

They wrote:

"Many elections are likely to be close ones. Some countries recognize that populists cannot achieve their goals, while others remain fascinated by populists. But overall, we think these trends are unlikely to change , so we believe the election fever in 2024 will ultimately have a negative impact on global growth, depressing the performance of growth stocks relative to value stocks ."
The report said populist regimes often push for large-scale policy reforms, which tend to drive up inflation in the short term. They also mean more borrowing and trade restrictions, which are downward forces on global economic growth.
The U.S. election has the greatest impact

Of all the elections, JPMorgan expects the U.S. election to be the most important. Judging from the current poll results, this year's US election is likely to see another showdown between Biden and Trump.

The report stated:

“We believe the U.S. election is more consequential and worth hedging than any other election, as a Trump victory could have broader macro implications, including undoing or reversing many of Biden’s policies through a series of executive orders policy ."
One of Trump's expected policies is to impose general tariffs of 10%, which is expected to trigger a full-scale trade war. If implemented, this could push the U.S. dollar up 4%-6% in the foreign exchange market. At risk of depreciation will be the yuan, the euro and the Mexican peso .
Uncertainty over U.S. and other global elections will also cause VIX to rise, while a potential recession will worsen the situation. JPMorgan strategists found that the volatility of the S&P 500 is 2 points higher in U.S. election years than in non-election years.

"As such, investors looking to position themselves for election uncertainty and a resurgence of populism should prepare for higher risk premiums and higher market volatility," the report said.
Deterioration of democracy will lower stock market returns
In addition to populism, JPMorgan Chase said that another key theme to watch in this election year is the continued erosion of "democracy indicators", which will also have an impact on the market.

JPMorgan Chase cited the findings of independent watchdog organization "Freedom House" and others, saying that the decline of global democracy and freedom has become a trend in the past 17 years.

"Weaker governance contributes to higher volatility and lower price-to-earnings ratios, and we find that after a democracy indicator downgrades, stock returns over a 10-year period are on average 5% lower than in countries that upgrade this indicator," JPMorgan said.