When election risks matter for investors

Elections create uncertainty, but the impact on financial markets tend to vary greatly by region and type of election. 

LatAm: buy the rumor, sell the fact

• Elections tend to see large risk premiums ex-ante, which are resolved after the results (even if the less “market-friendly” candidate won). 

Asia & Europe EM: an old fox is better than a new lion 

• These countries are often a story of political dynasties, where the burden of proof is on “anti-establishment” candidates to secure power and then follow through on their agenda.

US: “change” elections shift market leadership

• DM elections are usually less consequential, because (in theory) there are more robust institutions. However, “change” elections in DM can drive shifts in market leadership.