Category Investments

2024: What does the biggest election year in history mean for markets?

13 May 2024 Ninety One
Sangeeth Sewnath, Deputy MD at Ninety One

Sangeeth Sewnath, Deputy MD at Ninety One

Are elections really the market movers that people believe them to be? Sangeeth Sewnath, Deputy MD at Ninety One, explores the impact of elections on markets, and why you shouldn’t get emotional with your money.

2024 is billed to be democracy’s biggest year ever, with more than half of the world’s voting-age population eligible to vote. This could make for a jittery year all round, not least for global financial markets. History shows us, however, that there is little correlation between elections and market performance. In fact, the evidence supports the theory that markets perform better after elections given the risk aversion beforehand.

What does this mean for investors? In short, keep a cool head and avoid letting the headlines influence your investment decisions.

Markets are fundamentally forward-looking, in part driven by the analysis of key events and their potential impact. In an election year – with more than 70 countries including the US, the UK, India and South Africa heading to the polls – markets will build in at least some level of political risk. Investors are renowned for loathing uncertainty, which is why negative political news flow may upset markets as they attempt to discern what this risk means for asset prices.

While uncertainty around election outcomes and potential policy changes can lead to increased market fluctuations, we analysed historical returns to determine if elections really are the market movers that people believe them to be.

Starting with the US, Figure 1 below shows the growth in value of US$1 invested in the S&P 500 from the 1920s to 2023. Looking at the overall picture, it becomes clear that shorter-term uncertainty emphasises volatility but longer term, markets go up.

Figure 1: Growth of a dollar invested in the S&P 500, January 1926 – December 2023

Source: Ben Wacek, LinkedIn, September 2020, How much do elections actually affect the stock market? Data source:, period January 1926 to December 2023.

Turning to South Africa, we compiled equity market returns (using the All-Share Index (ALSI)) and bond market returns (using the All-Bond Index (ALBI)) for the election years from 1966 to 2019. As Table 1 shows, we found that in 14 election years just 2 were negative for equities and 4 were negative for bonds. This suggests that elections may just create noise and uncertainty, but may not, in fact, be significant market movers.

But if this is the case, what actually causes bear markets in SA?

Table 1: More often than not, election years have been good for SA markets

Source: Bloomberg: ALSI 1966 to 1994, ALBI 1966 to 1999. Morningstar: ALSI 1999 to 2019, ALBI 2004 to 2019. South
African Reserve Bank: USDZAR 1970 to 2019.

Recent bear markets have been driven by global factors and not elections
To answer this question, we analysed the South African All-Share Index (ALSI) from 1965 to end 2023 in Figure 2, which we then split into bear market and bull market periods. We analysed the bear market periods further to find the root causes, which are highlighted in the chart. What becomes evident is that SA bear markets have been mainly driven not by elections, but by global factors, such as global oil shocks, financial crises and the Covid-19 pandemic.

Figure 2: History of SA bear and bull markets since 1965

Source: Bloomberg, Deutsche Bank and Ninety One as at 31 December 2023.

Don’t be emotional with your money
South Africans tend to attribute rand weakness to what’s happening in South Africa, rather than exogenous factors. So, in an election year with pronounced political insecurity, local investors may interpret rand weakness as evidence that the country is heading for collapse because of an uncertain political environment. Meanwhile, the real reason the rand is weak may be because the US Federal Reserve is not cutting rates and global markets have taken risk off the table as they seek further
global stability.

It’s easy to lose perspective when the world is in a state of flux, and feeling powerless to change external circumstances can drive you to ‘want to do something’. But when it comes to your money, panic selling could cost you dearly.

The lesson here is: Don’t get emotional with your money. Load-shedding and seemingly endless electioneering can leave you feeling drained, but when it comes to your money, our experience is that it's best to keep sentiment out of the equation. Fortunately, it’s not all bad news, and there is some cause for optimism in SA too, with progress in rebuilding state institutions like SARS and the Special Investigations Unit, the improved financial stability of Eskom, and a more positive inflation and interest
rate outlook over the longer term.

The reality is that volatility creates buying opportunities for active asset managers who are skilled in analysing the numbers to determine the right course of action and remaining unemotional. Sure, the potential for political change can leave you feeling vulnerable, but when it comes to investments, it’s best to keep a cool head.

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