This year has been fraught with volatility in financial markets as investors fret over tighter monetary policy, rising inflation and tensions surrounding global trade. But another factor could make markets even more volatile: elections around the globe.
Key elections in Mexico, Turkey, Brazil, Colombia and the United States are scheduled to take place later this year, and they could have ripple effects across global financial markets amid a rising trend in populism.
Populist candidates in Mexico and Brazil are leading the polls, increasing the possibility that those countries could take more extreme stances on matters such as trade and security.
Investors have already faced turbulence stemming from an election this year.
In Italy a government coalition was formed last week by two anti-establishment parties, the Lega and the Five-Star Movement. The newly formed government raised eyebrows after nominating Paolo Savona — a Euroskeptic — to become Italy's next economy minister.
The move, which was rejected by President Sergio Mattarella, sparked concerns that Italy could leave the European Union as well as a spike in global-market volatility. Italian bonds plummeted last month, while the Italian FTSE MIB index dropped 9.2 percent. Spanish stocks also saw increased volatility, recording seven moves of at least 1 percent in May, while German stocks posted six. The euro also fell 2.5 percent against the dollar last month.
Investors are also feeling the pinch from election risks coming from emerging markets as those fears help send those stocks and currencies lower. On Thursday, Brazilian stocks fell more than 5 percent, while the broader iShares MSCI Emerging Markets ETF pulled back 1.3 percent. The decline in emerging markets sent the S&P 500 lower on Thursday as investors pulled money out of U.S. stocks and into bonds.
In the United States, Wall Street is keeping an eye on this year's midterm elections amid fears that Democrats could get a majority in the House, thus making it harder for Republicans to move forward with their economic agenda.
"Investors don't like uncertainty, and elections certainly bring that," said Chris Gaffney, president of world markets at TIAA Bank.
Below we break down the upcoming elections and examine the risks they present to investors.