A string of election surprises in Mexico, South Africa, and India has sent major emerging market currencies and stock markets tumbling, underscoring the enduring impact of politics on global financial landscapes.
In Mexico, the peso has plunged nearly 5% since Sunday’s election, which saw the ruling MORENA party led by Claudia Sheinbaum secure a resounding victory. The peso’s current trajectory indicates its worst performance since the COVID-19 pandemic’s onset in March 2020.
South Africa’s rand has also faced headwinds, losing around 3.5% over the past week amid concerns over the formation of a potentially unstable coalition government following the ruling ANC party’s lackluster showing in the polls.
India’s equity markets have taken a massive hit in the wake of Prime Minister Modi’s projected loss of his parliamentary majority. Indian shares plummeted by almost 6% on Tuesday, their most significant decline since the COVID-19-induced market rout. The prospect of the governing alliance shifting its focus towards welfare measures instead of key infrastructure projects has raised concerns among analysts, who believe that crucial reforms and privatizations are now ‘off the table.’
The market jitters have led to an uptick in India’s government borrowing costs and a 0.5% depreciation of the rupee against the U.S. dollar, its sharpest fall in 16 months.
Experts caution that the ‘window of most concern’ for Mexico may still lie ahead, with outgoing President Andres Manuel Lopez Obrador potentially using MORENA’s newfound ‘super majority’ in September to push through constitutional changes that were previously rejected. Additionally, the upcoming U.S. election is being closely watched as it could have major implications for emerging markets, given the potential for heightened trade tensions and other policy shifts if Donald Trump regains power.
These market developments serve as a reminder of the significant influence that political events can wield in shaping the fortunes of emerging market economies.
