Indonesia stocks could catch the election fever enjoyed by India's equity markets in the run-up to Narendra Modi's win at the south Asian nation's election in May, says Morgan Stanley, but Brazilian stocks might not experience the same euphoria.
The two emerging market (EM) giants are bracing for national elections – Brazil in October and Indonesia in July – and hopes are high that their share markets might see similar gains relished by their developing peers who had elections this year.
The MSCI India, for example, rallied 11.7 percent relative the MSCI EM Index in the three months prior the Bharatiya Janata Party opposition leader Modi's victory on May 16, and 5.4 percent in the one month before, Morgan Stanley observed. Meanwhile, the MSCI South Africa gained 8.1 percent versus the MSCI EM index in the three months before the incumbent African National Congress party won elections in May, compared with 1.46 percent in the one month before.
According to the investment bank, emerging markets usually rise 3.1 percent in the one month prior to elections. But the extent of the gains would depend on whether it's a case of a clear leading candidate, which will boost stocks, or if an opposition party claims power, which will trigger an even bigger rally. Neck-and-neck races tended to lead to underperformance, Morgan Stanley said in a recent report.
For Indonesia and Brazil, Morgan Stanley is predicting different outcomes for both stock markets, with big gains tipped for the former.
"If the market shifts again to factor in a popular-opposition victory, MSCI Indonesia could outperform EM by around 10 percent in the run-up to the election," said Morgan Stanley in the note.