Politics in 2024 will be a factor for Asian asset owners like never before, with elections happening in many of the world’s most populous countries.
UBS chairman Colm Kelleher, speaking in Shanghai last week, said, “On the macroeconomic and geopolitical front, we are in for another uncertain year with great potential for surprises.”
Next month, we will see elections in Indonesia, Pakistan, and Cambodia, followed later this year by India, Korea, Sri Lanka, Mongolia, and some of the smaller island nations of the Pacific.
In a record year for elections, about 4.2 billion people will vote. “That is, every other adult on the planet,” noted Karine Hirn, Hong Kong-based partner with East Capital.
Asian markets, particularly India and China, are expected to gain support from global allocators in 2024. Chinese equities remain on many investors’ buy lists because of historically low stock prices relative to earnings. The IMF forecasts emerging markets, including China and India, to grow between 4% and 6% in 2024 compared to 1.4% for the developed markets.
On the other hand, China’s reaction to sovereignty challenges in the South China Sea and any retaliation over last weekend’s victory for Taiwan’s incumbent pro-independence party could create unnecessary market uncertainty.
“Obviously not all these elections are meaningful for investors because some are either far from the expression of any democratic processes, in the case of Russia and North Korea, or the outcome is already more or less known, as in India.”
POPULISM RISKS
What investors will pay attention to, said Hirn, is the kind of money incumbent governments want to spend and the populist reforms they want to initiate ahead of the ballot, and where.
At the 2023 Australian Securities and Investments Commission conference in Melbourne, Future Fund CEO Raphael Arndt pointed to a global political dynamic of more populist governments as a potential threat for investors.
“The nature of these things is more populist governments direct capital, intervene in markets more, not always from a purist economics point of view, and therefore, they reduce potential economic growth — and that’s inflationary,” he said.
This trend has emerged in countries such as the US, where Arndt said that younger generations have had a very different life experience to their older counterparts.
“They have a different access to wealth. They have a different access to various types of life outcomes and they’re not very happy and they’re starting to exercise that at the ballot box in democracies,” he said.
Also in 2024, as access to AI tools becomes increasingly available, there are big concerns about risks of misinformation and manipulation of public sentiment, said Hirn.
“It is a question of how authorities will manage these risks and how this in turn can impact tech and social media companies; how much of the market becomes politicised,” she said.
NEW INDONESIAN DYNASTY
Continuity of government is something investors like to see, especially where economic progress has been significant. Indonesia’s outgoing president, the highly popular Joko Widodo (Jokowi), having served his maximum two terms, sought last year to explore the legality of extending his tenure.
He was roundly criticised for this, and for subsequently manoeuvring his eldest son into position as a potential running mate for Prabowo Subianto, the front runner in the elections to be held on February 14.
“I’m a big fan of Pak Jokowi, but it doesn’t feel right that he’s doing that,” a Jakarta-based asset owner told AsianInvestor.
But because he is so popular, with a remarkable 80% approval rating, it’s almost inevitable that Jokowi will get the dynastic continuity he needs.
“The markets will be happy if Prabowo wins, with the idea that the Jokowi dynasty is confirmed,” said the Indonesian asset owner.
“As an investor, I see it as two things. What Jokowi is doing is actually good for the country, building infrastructure and controlling the economy. But it’s not necessarily good for the markets. That’s why the market has not been going anywhere in the past couple of years, because he controls the price of key materials and goods, trying to push down inflation.
“It’s very good for Indonesia because for a country of 275 million people, inflation is a very sensitive thing. But that’s not necessarily good for listed companies. Imagine companies in the US being told they have to bring down the price of their products.
“As an investor, you have to decide to buy, sell, or do nothing. The market is getting cheaper and cheaper, so it is becoming attractive.”
THE BIG ELECTION
While there are several issues of concern within Asia itself, there’s a groundswell of opinion that the major geopolitical risks for the region are external.
“For Asia, I think that the election which will matter the most is actually not happening on this continent but in the US, both in terms of outcome and prior to the actual election date,” said Hirn.
“We have been encouraged by a more positive tone in the relationship between the US and China lately. But China is often used as a key concern by both Republicans and Democrats and we will most likely see a continuous elevated level of tensions because of this.”
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