Election year for emerging markets: What to expect
It's election year for major emerging market economies from India to Brazil.
And political risk falls at a time when investors are assessing just what an unwinding of U.S. monetary stimulus means for the developing world.
The so-called 'Fragile Five' – India, Indonesia, Brazil, South Africa and Turkey – all hold elections in the months ahead, with corruption just one theme expected to be feature highly.
"There has been a notable shift in market concerns about emerging markets over the past month or so," said Nicholas Spiro, managing director at Spiro Sovereign Strategy. "While the May to August 2013 phase of the sell-off was dominated by fears about balance of payments weaknesses, the current phase is about a broader set of risks, in particular growth, the credibility of the policy-making regime and the political climate in general."
Here's a run-down of what to expect in five key emerging markets.
Election due: Elections for a new parliament expected in April, followed in July by a presidential election. If there is no clear winner in the first round of voting in the presidential election, a second round is expected to take place in September.
Backdrop: Like its emerging market peers, Indonesia has come under pressure from an unwinding of U.S. monetary stimulus that has exposed economic weaknesses such as a wide current-account deficit. The central bank has hiked rates five times since the middle of last year to prop up a crumbling currency. While the economy, the biggest in Southeast Asia, grew a better-than-expected 5.72 percent on year in the fourth quarter, economists say political uncertainty, the impact of monetary tightening and a controversial mineral export ban will all be headwinds in the coming months.
Key election themes: Endemic corruption, poor infrastructure, under investment in health and education.
Expected outcome: Analysts say it's unlikely that any one party will win an outright parliamentary majority. The best case scenario for markets, they say, is one in which a big party wins a sizeable chunk of seats that enables it to form a coalition with one or two other parties. The country's main political parties include President Susilo Bambang Yudhoyono's Partai Demokrat and the opposition Democratic Party-Struggle run by former President Megawati Sukarnoputri.
Candidates for the presidential election are not expected to be announced until after the parliamentary vote. One potential candidate is popular Jakarta governor Joko Widodo, known as Jokowi. He is viewed as a favorite to win if selected to run.
The wild card: Watch the youth vote. Of the projected 187 million eligible voters in this year's elections, over a third will be between the age of 16 and 20. Indonesia's politicians face a young electorate that is increasingly online and this could well shape the political landscape in the years ahead, analysts say.
View from the experts: "From the market perspective, a Joko government might be the best case scenario – primarily for the chance of breaking the parliamentary deadlock, which has held back tough economic reforms," says Wellian Wiranto, an economist at OCBC Bank.
Election due: National elections due by May; no date set yet.
Backdrop: India, Asia's third biggest economy and the world's largest democracy, was one of the hardest hit emerging markets last year. Its currency slumped to a record low last August, as investors punished the country for not doing more to tackle a wide current-account deficit, address a sluggish economy and implement structural reforms. The start of 2014 has been far more positive, with a concerted bid by India's central bank to contain the crisis. The government in its budget this month meanwhile unveiled indirect tax cuts to help woo voters.
Key election themes: Consumer inflation, running at an annual rate above 9 percent, and rampant corruption.
Expected outcome: Opinion polls suggest the ruling Congress party is heading for defeat at the hands of the opposition Bharatiya Janata Party's (BJP).
The wild card: The anti-corruption Aam Aadami Party has shaken things up, winning the hearts and minds of an electorate dismayed with corruption. The party made a spectacular debut in Delhi state elections at the end of last year, winning 28 of the 70 seats up for grabs. Whether it can replicate that success across the country now remains to be seen.
(Read more: India's hottest startup is a political party)
View from the experts: "The main thing now is that we get a stable and effective government," said Standard Chartered Senior Economist Anubhuti Sahay. "Since 2010, policy making has not happened at the required pace, so the election could be a turning point for the economy and that would mean the investment environment improves."
Election due: General election scheduled for May 7.
Backdrop: South Africa's economy grew 0.7 percent on quarter in the third quarter of 2013, the slowest pace in more than four years, and sticky inflation stood at an annual 5.4 percent on year in December. Its currency, the rand, hit a five-year low against the dollar in January, exacerbating labor disputes and a wide current-account deficit.
Key election themes: Unemployment running at about 24 percent, poor infrastructure, labor unrest, a weak economy and corruption.
Expected outcome: The African National Congress (ANC) is expected to extend its 20-year hold on power but with a reduced minority in the 400-seat parliament amid corruption scandals and civil unrest. The ANC has won each of the last four elections by a landslide, winning more than 60 percent of the popular vote. The Democratic Alliance is the official opposition and currently holds 67 seats to the ANC's 264.