Emerging markets go to the polls

India’s electorate chose to tackle the country’s stagnating growth by electing opposition leader Narendra Modi as prime minister.

Jan Dehn, head of research at Ashmore Investment Management, explains: “We expect the Modi administration to use its substantial mandate to make significant reforms to India’s economy. Meanwhile, India’s external balances continue to improve. The sharp turnaround in India’s external balances illustrates the superficiality of the analysis that led to India being classified as a ‘fragile five’.”

Other areas of note in recent months include the situation in Ukraine, which led in May to the election of Petro Poroshenko, a billionaire businessman who owns a large confectionary business.

What effect this decision might have on the situation in Eastern Europe is unclear, although Mr Dehn notes: “His mandate is strong enough that the case for secession in eastern Ukraine has been weakened significantly.”

Other emerging markets that have seen drastic changes include Thailand, which last month was the stage of a coup by the Thai military and the declaration of martial law.

Robert Harvey, portfolio manager at Matthews Asia, notes that for several years, the country has been locked in a bitter political struggle between pro-government “red shirts” and anti-government “yellow shirt” protesters.

He adds: “At this point, it’s difficult for anyone to know what will happen or how Thailand intends to bridge the divide between its main rival parties. [However,] the baht and the equity markets have remained remarkably stable. This is partly because many investors have seen it all before. Political turmoil here is not new.”

Meanwhile, in developed markets, last months European elections signalled the rise of the eurosceptic parties and what many considered to be a ‘protest’ vote against the austerity measures and economic reforms that have been implemented in the wake of the financial crisis.

It is estimated that on aggregate political parties opposed to the current European policy consensus are set to control roughly a quarter of the seats in the new European parliament.

However, Jeremy Lawson, chief international economist at Standard Life Investments, notes: “Because the rise of the eurosceptics has few direct near-term implications for European policy, we expect markets to mostly take the election results in their stride.”

Nyree Stewart is features editor at Investment Adviser