Executive summary

2024 is a record-breaking year for elections, with voters in 77 countries, comprising about half of the world’s population and nearly 60% of world GDP, going to the polls. Elections will take place in a number of the most populous countries in the world—Bangladesh, India, Indonesia, Mexico, Pakistan, Russia and the US, while the EU will hold parliamentary elections and the UK has announced early elections to be held before January 2025.

Top 10 themes to watch for in the biggest global election year in history

1. The 2024 election bonanza will tell us much about whether the recent trends of polarization, populism, democratic deterioration and geoeconomic fragmentation will continue to rise, are just plateauing, or will finally start reversing towards more traditional consensus politics.
2. We know that each of these four horsemen depresses economic efficiency and growth over the long run, even as these impacts have yet to be fully realized. There is little evidence that populism has much economic impact in the short term outside of higher inflation. Over the long term, populist-led countries tend to experience lower growth, trade and financial openness, and higher debt-to-GDP.
3. The weakening of democracy metrics carries market consequences. Weaker governance creates higher volatility and lower multiples, and we find that, after a democracy downgrade, equity returns have, on average, been 5% pa lower over a 10yr period than in countries that were upgraded.
4. Many elections will likely be a close call, with some countries recognizing that populists do not deliver and others still in thralled with them, but overall, we think these four horsemen are unlikely to fade and thus think the 2024 elections bonanza will eventually turn out as negative for global growth, depressing Growth stocks vs Value. We do not think they will bring back the old days of zero or negative real yields given steadily rising deficits and debt loads.
5. The US elections carry the most material risks to global economic prospects and markets given the ongoing shifts in the international order. The prospects for a Biden-Trump runoff in the US elections, as well as the rise of far-right parties in Europe, could receive as much attention as the countries at war in the coming year.
6. The economy remains the top voter issue in the US, but key factors to monitor include voter turnout, swing state voters and potential voting divisions across gender, generational and racial lines. The US election is also projected to be the most expensive to date, with anticipated ad spending of $10.2bn across all platforms.
7. In the event of a shift away from multilateralism, further tariffs and a broadening of the US-China conflict are seen as dollar positive events. CHF and JPY should also benefit from tariffs, while CNY, EUR, and MXN screen as being vulnerable to tariffs.
8. Domestic politics are fueling populist politics, but it remains unclear that there will be a resurgence in elected populist regimes, which reached a peak in 2018-2019. Nevertheless, populist politics are likely here to stay regardless of electoral outcomes, as structural social shifts have moved populism into the mainstream.
9. For EM, the elections in Taiwan, India, South Africa, Romania and Mexico are the standouts that could have an impact on domestic macro and market outlooks. EM frontier markets, suffering from balance of payments pressures and loss of market access, face a heavy election calendar with opposition parties seen as gaining ground.
10. New tech brings new threats to democratic processes, as the greater use of AI and social media could influence campaigns. The rise of deepfakes through AI could be used to spread misinformation.

The 2024 election bonanza: Will politics reshape geopolitics?

• 2024 is a record-breaking year for elections, with elections taking place in 77 countries, including the US, EU, UK, Mexico, India, Russia and Taiwan, although the US elections are arguably the one race with broad global consequences.
• Conventional wisdom that geopolitical risks generate more noise than trend could be challenged by the ongoing shift to a multi-polar world and away from multilateralism, considering the 17-year decline in democracy and global freedom.
• We highlight the formation of new alliances, regional trading blocs and the rise of “mini-laterals.”
• We distinguish between political and geopolitical risks, as political risk relates to country-specific elections and referendums that are domestic in nature, while geopolitical risks involve economic and military conflict beyond the nation state.
• We outline a watch list for tracking elections across DM and EM countries, including “freedom and fairness” scores, as 28 of the 71 countries tracked in the EIU’s Democracy Index do not meet the essential conditions for a democratic vote.
• It remains unclear whether there will be a resurgence in populist regimes, which peaked in 2018-2019, but populist politics are likely here to stay regardless of electoral outcomes, as structural social shifts have moved populism into the mainstream.
• We discuss how advances in artificial intelligence could affect upcoming elections through the spread of misinformation and rise of deepfakes.
• We examine the market performance of countries that are downgraded in democracy ratings compared to markets that have been upgraded. Weaker governance creates higher volatility and lower multiples, and we find that, after a democracy downgrade, equity returns have, on average, been 5% pa lower over a 10yr period than in countries that were upgraded.

Geoeconomic fragmentation gives rise to greater political fragmentation

2024 brings a record number of elections across DM and EM countries. Looking at history, elections have usually had little impact on underlying macro trends. Markets have typically been volatile in the run-up to an election, only to rally thereafter once the uncertainty is removed. There are reasons to believe that the 2024 cycle might be different, with two wars raging at the same time that geo-fragmentation is taking hold, with mounting concerns that the world economy is separating into blocs. As multilateral cooperation has become more contentious, there has been a resurgence of industrial policy and formation of commercial alliances based on political circles of trust. For many elections, there are competing visions for the international order and economic policy that could generate greater policy and regulatory uncertainty with the potential to escalate conflict.

Elections will take place in a number of the most populous countries in the world—Bangladesh, India, Indonesia, Mexico, Pakistan, Russia and the US, while the EU will hold parliamentary elections and the UK has announced early elections to be held before January 2025—but the US elections are arguably the only race with broad global consequences. In the US, uncertainty remains high and will more likely be a focus in 2H24, with implications for the fiscal outlook and potential for a ramp-up in trade tensions. Taiwan’s upcoming elections are in focus due to heightened US-China geopolitical tension and the ongoing power conflict between Washington and Beijing, as highlighted by former US House speaker Nancy Pelosi’s visit to Taiwan in August 2022, followed by the Mainland’s military drills around Taiwan. In Europe, the key point of contention on the political side will be the reform of the Stability and Growth Pact, which will set the stage for the fiscal outlook across EU countries for next year, while the next wave of enlargement outcomes will coincide with the process of institutional reform. The center in Europe appears to be shifting to the right, but we see this mostly as opposition to more immigration rather than polarization or a rise in anti-EU sentiment. Figure 1 outlines a summary of key elections across DM and EM for 2024, along with their freedom and fairness scores.

Figure 1: Key 2024 elections across DM and EM election range from highly free and fair to not free and fair

Free and fair elections index ranges from 0 (not free and fair) to 1 (most free and fair).

Note: Ukraine presidential elections have been excluded, as elections are suspended during wartime.
*Date to be confirmed. 1. Media reports see an increasing possibility that elections could be called in 2024. 2. Elections for European Parliament will occur across all 27 member states. 3. Must be held no later than January 24, 2025, and thus likely to happen in 2024.
Source: NDI, IFES, various media sources, J.P. Morgan Strategic Research

The new international order: Flexible cooperation and the rise of “mini-lateralism”

The elections are taking place against a backdrop of accelerating geoeconomic fragmentation, as trading patterns have shifted over the past four years with new alliances and regional blocs emerging. The US-led, rule-based order continues to fray as the global economy evolves toward a less cooperative and more competitive multipolarity. We are still far from a fully fragmented world, but global alliances are shifting. It has been five or six decades since the global landscape has been confronted with active wars in Europe and in the Middle East, along with elevated military tensions in Asia. The number of armed conflicts in the world has been steadily rising over the past 10 years, alongside the increase in deaths from armed conflicts, fueling the increase in financial sanctions.

Figure 2: International military conflicts are more than double GFC levels

Number of disputes

Source: Caldara and Iacoviello 2022; Häge 2011; SIPRI Military Expenditure Database; Uppsala Conflict Data Program; and IMF staff calculations.

We find that the conventional wisdom that geopolitics generates more volatility than trend is being challenged, as there is now a feedback loop as economics drives geopolitics and geopolitics drives economics. Although there could be winners in this process, with Mexico and India standing out, the majority of countries stand to lose (see Geopolitical Update: A fragmented and fractured world: Geopolitical resilience remains elusive, Joyce Chang et al., 30 Oct 2023). As Figure 3 shows, in mid-2023, Mexico became the US’s largest source of imports, surpassing China. Mexico is also the US’s number one trading partner, with Canada in second place and China in third. China has also redirected a growing share of its trade to EM economies.

Figure 3: Trade patterns are shifting, and US imports from China and Mexico have converged

Source: U.S. Census and J.P. Morgan

Figure 4: China’s exports to EM countries are on the rise

US$ bn, sa

Source: Haver, J.P. Morgan

The return of systemic rivalry between democracies on one side and China and Russia on the other has resulted in an ongoing separation of the world’s economy into new networks and alliances outside of formal institutions. As noted in the German Marshall Fund’s report on the Global Swing States, this transition actually began in earlier in 2012 with the return of Vladimir Putin to the Russian presidency and the installation of Xi Jinping as Chairman of the Chinese Communist Party.¹ Figure 5 highlights the growing proliferation of “nimble new mini-laterals,” as discussed at length in Foreign Policy.².

Figure 5: New alliances in a multi-polar world: The rise of “mini-laterals”

Source: J.P. Morgan Strategic Research, Reuters, RAND, The White House, US Department of State, USTR, CFR, US DoD, GFDC, Alianza del Pacífico, UN.

Figure 6: Rise of regional trade agreements

Source: J.P. Morgan Strategic Research, China SCIO, VOA, Lawfare Institute, China Briefing, USTR, Australia DFAT, MOE UAE, CR

As global economic integration has slowed, geopolitical tensions have risen, and there has been a resurgence in industrial policy by G7 countries with restrictions on cross-border movements of capital, technology, workers and international payments with more restrictions on trade (in particular, trade in strategic goods such as critical minerals and semiconductors). The resurgence in industrial policy by G7 countries mirrors the type of industrial policy that China has long employed. The rise in the share of commercial policies that constitute industry policy increased from 18% in 2009 to 46% in 2019, with the most dramatic increases occurring since 2019. Trade restrictions are on the rise to secure domestic supply, while governments are introducing import restrictions in the name of national security concerns. Recently introduced policies include a rise in targeted incentives by governments via subsidies and investments that include greater government funding in promoting innovation research and onshore production. New US industrial policies, including the Bipartisan Infrastructure Law, Inflation Reduction Act (IRA) and CHIPS and Science Act, have the goal of reconfiguring trade and supply chains to boost domestic industry while working in tandem with friendly allies or partners. The procurement of transition minerals will be critical to address the new supercycle for “green metals.” The IRA incentivizes the onshoring of green industrial manufacturing by subsidizing solar manufacturing or electric vehicles with batteries made in North America. European, South Korean and Japanese automakers have taken issue with the IRA requirement that electric vehicle (EV) assembly can only take place in North America (see The Long-Term Strategist: Top long-term risks and what to do about them, Jan Loeys et al., 18 July 2023).

Figure 7: Resurgence of industrial policy…

Share of industrial policy in trade policies

Source: Juhász, Lane, Oehlsen and Pérez (2022).

Figure 8: …alongside the rise in sanctioned countries

Number of countries with financial sanctions (indices, 2016-19 = 100)

Source: Bank for International Settlements, Locational Banking Statistics; FinFlows; Global Financial Sanctions Database; Institute of International Finance, Capital Flows Tracker; IMF, Coordinated Direct Investment Survey; IMF, Coordinated Portfolio Investment Survey; and IMF staff calculations.
Note: Data indicates the number of countries with financial sanctions (dots) and the share of countries with financial sanctions in the sample (bars).

Beyond geopolitical risks, there are also concerns that the upcoming election cycle could lead to less fiscal discipline in both developed and emerging markets. Debt sustainability will remain a source of market volatility in the high for long world. Figure 9 shows that debt as a share of GDP has risen materially across the developed markets, with public sector debt jumping more than 30%-pts of GDP for 13 of the 21 major developed economies examined and surged over 45%-pts for 9 since the Global Financial Crisis (GFC). The fiscal deficit also soared as discretionary fiscal packages amounted to a cumulative 4% of GDP between 2008 and 2010 and 3% of GDP in 2020 alone. Combined with automatic stabilizers that operated through both increased spending as well as reduced tax revenues, fiscal deficits surged through both downturns. Expenditures remain 2.3%-pt of GDP above their 2019 level (see Up, up and away: Assessing government debt sustainability, Joseph Lupton and Alexander Wise, 22 February 2023).

Figure 9: Higher DM fiscal debt

% of GDP; both scales (through est. 2022)

Source: J.P. Morgan, OECD, IMF (US recession bars)

Figure 10: Fiscal revenues and expenditures in DM

% GDP Dashed lines show pre-recession level and extend 3yrs

Source: J.P. Morgan

Politics and geopolitics: Not to be confused

Geopolitical risk and political risk are often used interchangeably and should not be confused, as fragmentation of the world is occurring at both the national and international levels. Political risks related to elections and referendums are country-specific risks that are largely domestic in nature. Domestic polarization is what it says—citizens and voters move away from the center into opposing poles that have little communication with each other and mostly aim to oppose whatever the other side proposes. Geopolitical risks involve economic and military conflict beyond the nation state with multinational dimensions that can include war, trade barriers and commodity supply shocks. There are commonalities, as both stand in opposition to open, democratic societies and cross-country integration and cooperation. Both wax and wane over time and seem largely a response to growing inequality and economic dislocation and marginalization and have led to a rise in populism over the last few decades. Three interrelated factors have likely contributed to growing income inequality in most countries—technological progress (e.g., the rise of automation), globalization, and deregulation of financial markets. All three trends have generated winners and losers and have weighed on middle-class income and jobs. The rise in income inequality, alongside the increase in economic dislocation in the wake of the pandemic, has also led to popular discontent with globalization. There are no signs that support for anti-establishment parties will decrease in the short run. Populism could remain a political force for a considerable time, with political risks unlikely to fade.

Political dysfunction or deterioration of governance could lead to destabilizing political acts or omissions. In recent years, many countries have been downgraded on governance and democracy, with populism on the rise. For example, Freedom House downgraded the US in 2017 and 2020 in its annual Freedom in the World report.³ There is risk that this trend of deteriorating governance continues or even accelerates. We have previously documented how downgrades in these rankings have been associated with subsequent equity market and currency underperformance over the long run. We see a significant risk that populism, the US-China strategic competition and the drive to develop national champions and self-sufficiency in sections crucial to national security may damage global growth and profit margins (see The Long-Term Strategist: Top long-term risks and what to do about them, Jan Loeys et al., 18 July 2023).

Not all political and geopolitical risks are created equal, and we distinguish between high impact and low impact risks. For example, while the EU has a high number of parliamentary elections and center-right parties have risen in many countries, our European strategists see limited systemic risk from the elections given the broad reduction of the anti-EU stance and the institutional and practical obstacles to EMU exit. Similarly, since 1967, there were 20 major military confrontations in the Middle East and North Africa, 11 of them involving Israel. Our Commodity Strategy team points out that, strange as it might seem, since 1967, with the exception of the Yom Kippur war of 1973, none of the other 10 major military conflicts involving Israel resulted in a lasting impact on oil prices. Looking at Brent oil prices three months before and after the inception of each conflict, the team concludes that historically, regional conflicts involving Israel often prompted a sharp increase in oil prices, even with no immediate supply loss, likely due to apprehensions about potential disruptions. Eventually, oil prices tended to gradually stabilize and decline, resulting in Brent actually trading at a discount to its fundamentally derived fair value. In these cases, the near-term supply-demand balance and the resulting change in oil inventories were more important factors to follow than war. In contrast, during conflicts involving a major regional oil producer, oil traded at a wide $7-14/bbl premium to its fair value for an extended period. Currently, oil flows have not yet been affected, with limited risk of future supply losses. Beyond the short-term spikes induced by geopolitics, with oil trading in a wide $20/bbl range in 2024, our Commodities Research team expects Brent oil to average $83/bbl in 2024. This scenario assumes Saudi Arabia pumps an additional 250 kbd and Russia increases exports by 150 kbd, with global oil inventories likely to stay flat in 2024 and build 1.2 mbd in 2025 (see 2024 Commodities Outlook, J.P. Morgan Commodities Research, 30 November 2023).

Figure 11: WTI price three months before and after the initiation of military conflicts involving Israel

Index Day 0 = 100

Source: Britannica, Bloomberg Finance L.P., J.P. Morgan Commodities Research. Note: the military conflicts exclude the Gaza War (Operation Cast Lead) in December 2008 and the Israel-Palestine crisis (Operation Guardian of the Walls) in May 2021 due to larger macro-economic factors influencing prices at that time (Global Financial Crisis in 2008-2009 and post-COVID recovery in 2021).

Figure 12: Rank order of low impact versus high impact political and geopolitical risks

Source: J.P. Morgan Strategic Research

New tech brings new threats to democratic processes

In addition to concerns about a possible resurgence of populism, the wave of upcoming elections has fueled debate over whether liberal democracy is losing ground to authoritarianism and autocracy. According to the EIU’s Democracy Index, 28 of the 71 countries that it tracks will not meet the essential conditions for a democratic vote.⁴ Russia and Venezuela are slated to hold elections, but no changes are expected for the authoritarian regime in Russia. Meanwhile, the de facto leader of the Venezuela opposition, who would be a potent electoral threat to Maduro, is still banned from running, and there is uncertainty on the longevity of the political agreement and sanctions relief. However, even for countries where the outcome of the election appears assured, they can still provide a barometer for the strongman’s support.

In the US, Democrats, in particular, see the outcome of the 2024 elections as important or extremely important for the future of US democracy. In a recent AP poll that surveyed the importance of the coming presidential election for 12 issues, 67% of those surveyed said the outcome will be very or extremely important to the future of democracy in the US, ranking behind only the economy (75%). It was about equal to the percentage who said that about government spending (67%) and immigration (66%).⁵

The Center for American Progress has developed a framework for risk categories related to the governance and code of conduct of the elections, ranked low to high, that may warrant certain threat mitigation.⁶

Figure 13: Framework for assessing electoral integrity risk

Source: American Progress

As the world prepares for a series of elections, advances in artificial intelligence (AI) may very well affect upcoming elections, as the technology could be used to generate deepfake images and spread misinformation.⁷ The prolific use of AI is raising red flags on democratic governance as we enter into a slew of high profile elections across DM and EM countries. Social media has amplified populist rhetoric and has been an influence in election outcomes over the past decade, but the use of generative AI poses major threats to safeguarding democratic processes and ensuring free and fair elections. Attempts of insurrections that have occurred, such as those of January 6, 2021 in the United States and January 8, 2023 in Brazil, suggest that digital platforms, including social media apps, will need to actively monitor and reduce misinformation to ensure informational integrity. According to Freedom House, at least 47 governments deployed commentators to manipulate online discussions in their favor over the last year, while at least 16 countries used AI to sow doubt, smear opponents, or influence public debate. Authoritarian governments have also used AI to enhance and refine online censorship, as legal frameworks in at least 22 countries mandate or incentivize digital platforms to deploy machine learning to remove disfavored political, social, and religious speech. The recent election in Argentina had become a testing ground for AI in campaigns, giving a preview of what is to come in 2024. In the US, a bipartisan group of Senators, including Chris Coons, Marsha Blackburn, Amy Klobuchar and Thom Tillis, have introduced new regulation on AI to the US Congress in draft legislation dubbed the Nurture Originals, Foster Art and Keep Entertainment Safe Act, or, for short, the No Fakes Act, that seeks to counteract AI reproductions of human likenesses (visual and sonic) and penalize platforms that publish generated content without consent.

10 themes to watch in the 2024 US elections

• Based on current polling, the 2024 presidential race looks likely to be a repeat of the 2020 Biden-Trump faceoff.
• In our view, the US elections carry the most material risks impacting global economic prospects and markets given the ongoing shifts in the international order.
• We discuss the top 10 themes to watch in monitoring the US elections.

Geoeconomic fragmentation has given rise to global geopolitical risks at the same time that domestic politics are fueling increased populism and polarization. The prospects for a Biden-Trump runoff for the US elections as well as the rise of far-right parties in Europe could receive as much attention as the countries at war this year. These risks do not yet seem priced, and the investor survey conducted by our US fixed income strategy team in November 2023 shows that only 27% see the US presidential election as a very important risk in 2024 (Figure 15). However, the World Economic Forum’s Chief Risk Officers Outlook 2023 finds that continuing volatility in geopolitical and geoeconomic relations between major economies is the biggest concern for chief risk officers in both the public and private sectors over a longer-term horizon.

Notably, a leading concern for foreign policy experts polled in the Council on Foreign Relations’ annual Preventive Priorities Survey (PPS) is the possibility of domestic terrorism and acts of political violence in the US related the president election. In prior years, only overseas or foreign-sourced risks to US interests were evaluated in the PPS, which has been conducted since 2008. The PPS evaluates ongoing and potential conflicts based on their likelihood of occurring in the coming year and their impact on US interests. In their latest survey, the level of concern expressed about the risk of politically motivated violence in the US, especially surrounding the upcoming presidential election, was too great to disregard. This was rated a high-likelihood, high-impact contingency, thus validating its inclusion in this year’s PPS.

In our view, the US elections carry the most material risks of impacting global economic prospects and markets given the ongoing shifts in the international order. While it is too early to contemplate outcomes for the US elections 10 months out, every election since 2004, except 2012, has seen the White House, Senate or House flip control. In investor surveys conducted at our flagship conferences over the past year, respondents have consistently indicated expectations for an incumbent presidential victory by a narrow margin and split control of the Congress. Nevertheless, if the current polling persists, it is worthwhile to examine Trump’s policy record and the spectrum of possible economic implications. Decisions taken by the Trump administration included withdrawal from a number of multilateral agreements, including the Paris Agreement, the imposition of trade tariffs on China, the loosening of environmental regulations, immigration restrictions and the biggest corporate tax cuts on record. However, just as there is discussion of “what if Trump is elected,” there should be an equal discussion of “what if Kamala were to assume the presidency” if Biden were unable to complete his term. It has also been suggested that there could be a third Trump impeachment if he were convicted and then reelected.

We note that both Republican and Democratic speakers we have hosted in recent months have argued that there could ultimately be little differences in overall macro direction between Trump and Biden despite the highly charged rhetoric from Trump. Biden left in place most of Trump’s trade policies, including the trade tariffs. Neither would prioritize bringing down spending materially, although Biden has proposed tax increases and Trump has said he would oppose the sunset of his corporate tax cuts in 2025, when they are set to expire. Given the combined age of Biden and Trump at 160 years at the end of this year, there has been considerable market focus on the role of the Vice President. Independent analysts at our investor conferences have discussed Kamala Harris’ potential role in the future and some have assessed the probability as high as 65% that Kamala Harris might become president in the next three years (see Washington Policy Perspectives: Risk focus have moved from recession to unsustainable debt, Joyce Chang et al., 12 Sep 2023). Historically, Vice Presidential candidates have been announced days before or after the first day of the party’s Convention. The Republican Convention is scheduled to take place in Milwaukee, WI from July 15-18, 2024.

In addition to the presidency, all 435 seats in the House of Representatives and 33 Senate seats are up for regular election on November 5, 2024. One Senate seat is also up for special election. The campaigns will gain momentum starting with the Iowa caucus on January 15. The New Hampshire primary follows on January 23. On March 5, Super Tuesday will bring millions to the polls, as this is the date when the greatest number of states hold their primaries and caucuses. The figure below outlines key dates in the run-up to the elections.

Figure 14: Key US election dates

Source: J.P. Morgan Strategic Research, 270toWin

Figure 15: US investors see macro risks as greater than geopolitical risks

Market Drivers: How important of a driver of US fixed income markets do you think each of the following factors will be in 2024?

Source: J.P. Morgan
Note: Choices were shown to respondents in a randomized order and are shown here sorted by decreasing weighted average. Not very important = 0, Somewhat important = 1, Very important = 2

We highlight 10 themes to monitor that may influence voter behavior and the election outcome below.

1) Concerns on election integrity and changes to voting procedures

Voters remain concerned about the fairness and integrity of elections, although nearly two-thirds of Americans are very or somewhat confident in election accuracy.⁸ However, the gap in confidence between Democrats and Republicans has never been wider at 45%-pts. The latest available poll by Gallup shows that Republicans’ confidence level stands at 40% vs. 85% for Democrats, which is the largest gap Gallup has recorded on this measure since 2004, exceeding the previous high of 32%-pts, when former President Trump questioned the validity of mail-in voting in the 2020 elections.⁹

According to a recent study released by the Public Religion Research Institute (PRRI), in partnership with the Brookings Institution, 75% of Americans surveyed view the “future of American democracy as at risk in the 2024 presidential election.” Democrats, in particular, see the outcome of the 2024 election as important or extremely important for the future of US democracy. In a recent AP poll that surveyed the importance of the coming presidential election for 12 issues, 67% of those surveyed said the outcome will be very or extremely important to the future of democracy in the US, ranking behind only the economy (75%). It was about equal to the percentage who said that about government spending (67%) and immigration (66%).¹⁰A survey of investors in charge of almost $10trn worth of assets found that more than 90% believe threats to US democracy are rising, and less than 30% are confident that public companies are ready to manage that risk, according to the survey conducted by the States United Democracy Center, in partnership with the Brookings Institution. In the latest survey conducted by Pew Research Center, nearly 3 in 10 Americans expressed an unfavorable opinion of both major political parties—the highest share in at least three decades, according to a July 2023 survey. Overall, 28% of Americans have an unfavorable opinion of both the Republican and Democratic parties. This is more than quadruple the share in 1994, when just 6% of Americans viewed both parties negatively.

Figure 16: Since the mid-1990s, the share of Americans with unfavorable views

% who have an unfavorable view of both the Republican and Democratic parties

Source: Pew Research Center; Yearly average of survey data from Pew Research Center American Trends Panel (2020-2023) and Pew Research Center phone surveys of U.S. adults (1994-2019). “Americans Dismal Views of the Nation’s Politics”
Note: Based on those who rated both the Republican and Democratic parties.

Over the past two years, nearly every state has made some change to its voting laws, according to a report by the Voting Rights Lab. More states have expanded voting access, with 20 states making it easier to vote by mail, while 11 states have made the practice more restrictive. At present, 22 states have automatic voter registration. The changes to voting procedures reflect political party dynamics, as Democratic-led states have expanded voting access by institutionalizing pandemic-era policies that permitted voting by mail while Republican states have tightened rules in response to concerns about election integrity.

Figure 17: States head in different directions on mail voting

Source: Voting Rights Lab

2) Voter turnout and implications for electoral outcomes

The elections of 2018, 2020 and 2022 were three of the highest-turnout US elections of their respective types in decades, and we expect high voter turnout for the 2024 elections. Voter turnout is often cited as a key driver of electoral outcomes, but there is often a disconnect between reality vs. perception. Low Democratic turnout has been cited as a factor in Hillary Clinton’s defeat in the 2016 race, while low Republican turnout has been cited as the rationale for why the expected “red wave” did not materialize in the 2022 midterm elections. Trump’s base of support, estimated between 30-40% of the Republican electorate, will turn out in high numbers, according to political analysts, while some analysts expect high voter turnout from Democrats who will vote against Trump even if they are disappointed by some aspects of Biden’s performance.

Examining the analysis of voter turnout, there is no definitive evidence that turnout is correlated with partisan vote choice or that turnout rates predict election results.¹¹ About 80% of voters cast their ballot for the party they identify with, and even higher shares of the vote in recent presidential elections have reflected party identification. The remaining 20% of votes is comprised of independent voters and those who identify as Democrat and Republican but choose to vote for another. In recent elections, Republicans have had a higher turnout on Election Day, but Democrats have had a higher turnout for early voting and mail-in ballots.

The 2020 presidential election had the highest voter turnout since the 1900 election, with 155mn people turning out to vote or 66.8% of citizens 18 years and older voting in the election, according to data from the 2020 Current Population Survey Voting and Registration Supplement. Even the 2022 midterm election turnout at 46% exceeded that of all midterm elections since 1970.¹² As with past elections, a higher share of women (68.4%) than men (65.0%) turned out to vote. Voter turnout also increased as age, educational attainment and income increased. Voter turnout was highest among those ages 65 to 74 at 76%, while the percentage was lowest among those ages 18 to 24 at 51.4%.

Figure 18: Turnout for Presidential Elections 1948-2020

Source: Turnout data are from United States Election Project. http://www.electproject.org.

For the 2022 midterm elections, the Pew Research Center found that Republicans improved their performance due to higher voter turnout, contrary to some popular narratives, while preferences followed familiar patterns. Younger voters, Black voters and those living in urban areas supported Democratic candidates, while older, white and rural votes supported Republicans. In the 2022 midterms, 54% of men cast ballots for GOP candidates, while 44% preferred Democrats. Republicans also gained support from a higher share of women compared with previous elections. 48% of women voters cast ballots for GOP candidates in 2022, while 51% favored Democrats. In 2018, 40% voted for Republicans, while 58% supported Democrats. These shifts in margins largely reflect differential turnout rather than shifting preferences, according to the July 2023 Pew Research Center survey.

White voters have been more consistent voters than Black, Hispanic and Asian voters, according to the July 2023 Pew Research Center survey. They report that 43% of White voters eligible to vote participated in all three elections, with significant margin over other racial groups. By comparison, Black, Hispanic and Asian adults lagged far behind, with 27% of Black, 19% of Hispanic and 21% of Asian age-eligible citizens voting in all three elections. Hispanic citizens were most likely to have not voted in any of the most recent three general elections (47% compared with 36% for Black and 31% for Asian citizens ages 22 and older in 2022).

Across Black, Hispanic and Asian voters, the majority identify as Democrats, although Republican candidates have gained some ground in the past four years among Hispanic voters. Black voters favored Democratic candidates by the highest margin in the 2022 midterm elections, voting 93% for Democratic candidates and 5% for Republican candidates in the US House of Representatives elections. Hispanic and Asian voters clearly favored Democratic candidates as well, but by narrower margins—60% to 39% for Hispanic voters and 68% to 32% for Asian voters.

Figure 19: White adults voted more consistently than those of other racial or ethnic backgrounds from 2018 through 2022

% of U.S. citizens ages 18 and olderwho voted in __ elections out of 2018, 2020 and 2022

Source: Surveys of U.S. adults conducted Nov. 7-16, 2018, and Nov. 16-27, 2022, plus data from panelist profile surveys. Pew Research Center
*Estimates for Asian adults representative of English speakers only. Low effective sample size of Asian adults (88) with reliable turnout and vote choice data for 2018, 2020, and 2022. Notes: Based on 7.041 adult citizens who were 18 or older in 2018 and for whom reliable data on turnout and vote choice are available for the 2018, 2020 and 2022 general elections. Turnout was verified using official state election records. Vote choice for all years is from a post-election survey with additional data from panelist profile surveys. White, Black and Asian adults include only those who are not Hispanic. Hispanic adults are of any race.

3) The importance of key swing states and redistricting

National surveys have so far shown that 2024 US elections will be a very close race, while some battleground state polls have shown Trump with an edge in the places that will likely determine the outcome of the election. Based on latest polling data, Biden was trailing Trump in five of the six most important battleground states one year before the 2024 election by margins of 4-10%-pts. The one swing state where Biden was ahead was Wisconsin, but only by 2%-pts (Figure 20). In 2020, Biden won all six swing states by narrow margins of 0.2-2.8%-pts, or less than half of where polls had indicated (Figure 21).

Figure 20: Trump currently leads in the polling of five of six swing states…

Margins are calculated using unrounded figures, %

Source: New York Times / Siena College polls of 3,662 registered voters from October 22 to November 3

Figure 21: …the same swing states where Biden won the 2020 election by a narrow margin

Vote margin, %

Source: National Election Pool/Edison Research, 270towin, J.P. Morgan Strategic Research

Swing state voters trust Trump by a large margin on key issues such as immigration, the economy, crime and US-China relations (Figure 22). Across issues such as immigration, the economy, crime and US-China relations, swing state voters Trust trump by double-digit margins. Meanwhile, voters overwhelming trust Biden on issues such as climate change, followed by abortion.

Figure 22: Swing-state voters trust Trump on economy

Net Trump trust advantage on key issues

Source: Bloomberg News/Morning Consult poll. Note: Poll conducted online of 5,023 registered voters, Oct 5 through Oct 10. Margin of error is +/- 1 percentage point.

Since the 2020 elections, a new congressional map is in place for each of the 50 states due to redistricting, which occurs every 10 years following the Census to maintain equal presentation in the House. At the conclusion of the Census, seats in the House are reapportioned to reflect changes in state population. Every state is guaranteed one seat and the largest states can receive 50 or more seats. Each state is then required to go through the process of redrawing its electoral map, following certain federal redistricting requirements. The 2021-2022 congressional redistricting cycle resulted in six more Democratic-leaning seats than the old maps and the same number of Republican-leaning seats, according to Project 538. Project 538 reports that there are 187 Democratic-leaning seats, 208 Republican leaning seats and 40 highly competitive seats in the new maps. For most states, the state legislature has primary control of the redistricting progress, both for state legislative districts and for congressional districts. However, 15 states use special redistricting commissions to draw state legislative districts, while 10 states use an advisory or remedial commission. Several maps have been challenged in courts. The Project 538 analysis points out that the Democratic-leaning seats actually increased as a result of redistricting, although Republicans went into the cycle with control over drawing more districts. This is attributed to aggressive map-drawing by Democrats in states such as Illinois as well as court decisions overturning Republican gerrymanders in states like North Carolina.¹³ However, after accounting for incumbency, Republicans are actually the ones who have gained ground from redistricting, as they had a net gain of three to four seats in 2022 due to the new lines alone.

4) Rise of independent voters and third-party candidates

Polls show an increase in possible willingness to vote for an independent, third-party candidate, coinciding with the low-approval and favorability numbers for Biden and Trump. Gallup polling last month found that a record 41% of Americans see themselves as politically independent, outnumbering Republican and Democratic identifiers (28% apiece). The RealClearPolitics average of polls testing Biden and Trump against announced independent candidates Robert F. Kennedy and Cornel West and likely Green Party candidate Jill Stein shows 17.2% of voters willing to go rogue (Figure 24). However, we would not exaggerate the impact on overall voting trends. Between 2016 and 2020, the non-major party share of the presidential vote dropped from 5.7% to 1.9%.

Figure 23: U.S. Political Party Identification, 1988-2022

In politics, as of today, do you consider yourself a Republican, a Democrat, or an independent?

Source: Gallup

Figure 24: Rise of independent voters

%

Source: J.P. Morgan Strategic Research, RealClear Polling, Quinnipiac, Harvard-Harris, FOX News, Emerson, I&I/TIPP

5) Key voter issues—Economy and abortion

Voters consistently rate the US economy as their top issue going into the 2024 election, but there has never been such a significant gap between the actual health of the economy and public perception. Employers added 216,000 jobs in December, the unemployment rate remained steady at 3.7% and inflation has plummeted from 9.1% in June 2022 to 3.1%, yet people remain dejected about the economy compared to pre-COVID levels (Figure 25). In an AP-NORC poll, many Americans said that household expenses are outpacing earnings and that they worry about their financial futures, with 8 in 10 saying their overall household debt is higher or about the same as it was a year ago, half currently have credit card debt and about 1 in 4 have medical debt. Just 15% say household savings have increased over the last year. Relatively few Americans say they’re very or extremely confident that they could pay an unexpected medical expense (26%) or have enough money for retirement (18%). About three-quarters of Americans describe the nation’s economy as poor. A New York Times/Sienna survey of swing state voters asked young adults whether economic or social issues would be more important in determining their vote in 2024, and 62% chose economic issues, the largest share of any age cohort, while only 29% opted for social issues. 62% of them trust Trump to do a better job managing the economy, compared to just 34% of them who think that Biden would.

Figure 25: Index of Consumer Sentiment and news heard of recent changes in business conditions

Source: University of Michigan 2023

The 2024 election could see record turnout from women voters, with abortion rights and reproductive freedom as a key voting issue. Women have registered and voted at higher rates than men in every presidential election since 1980. As of 2022, there were 7.4mn more women than the number of men registered to vote, according to the Center for American Women and Politics.¹⁴ A higher proportion of women have voted since the mid-1990s, and the gender gap is largest among voters between the ages of 18-44, while male voters turn out at higher rates than women for older voters aged 65 and up. In the month after the Supreme Court struck down Roe versus Wade, the number of women registering to vote in the November 2022 midterm elections increased by 35% in 10 states that share voter registration data, including Kansas, Pennsylvania, Ohio, Oklahoma, Florida, North Carolina, Idaho, Alabama, New Mexico and Maine.¹⁵

Female voter backlash is cited as limiting Republican gains in the midterm elections following the June 2022 Supreme Court’s decision to eliminate the right to abortion at the nationwide level. While nearly two dozen GOP-dominated states have imposed restrictions on abortion, support for reproductive freedom has prevailed in every state-level referendum, including in the most conservative states such as Kansas, Ohio and Kentucky. 7 states have directly voted on abortion since the 2022 Supreme court decision, and 23 states enable citizens to put constitutional amendments on the ballot, while others only allow a state legislature to put them before the voters.

In the latest Reuters/Ipsos poll conducted in December 2023, 70% of those surveyed indicated that protecting abortion access would be an important issue in determining their vote, while half of those surveyed indicated that they would support legislation legalizing abortion nationwide, including one-third of Republicans. It remains to be seen whether women will break with the Republican party over this issue compared to economic and other priorities.¹⁶

The 2022 Supreme Court decision has polarized Democratic and Republican views of the US Supreme Court. For the first time in 30 years, views on the Supreme Court are more negative than positive, a July survey found. A narrow majority (54%) have an unfavorable view of the high court, while fewer than half (44%) express a favorable one. The court’s favorable rating has declined 26%-pts since 2020, primarily due to a decline among Democrats and Democratic-leaning independents, just 24% of whom express a favorable opinion of the court.

Figure 26: Favorable views of Supreme Court at lowest point in more than three decades of public opinion polling

% who says they have q(n)__ opinion of the Supreme Court

Source: Survey of U.S. adults conducted July 10-16, 2023. Notes: No answer responses not shown. Survey data from Pew Research Center’s American Trends Panel (august 2019-July 2023) and Center phone surveys (1987-January 2019).

6) Rise of nativism alongside rise of immigration now in focus

Immigration will be a major wedge issue in 2024, as the border crisis and migrant surge is overwhelming already-stretched resources. Federal authorities reported a seven-day average of more than 9,600 migrants at the southern border in December, which is among the highest amounts ever recorded as the US wrestles with an unprecedented surge. In 2023, for the second year in a row, the US Customs and Borders Protection (CBP) agency recorded over 2mn illegal crossings at the US-Mexican border (Figure 27). This figure is likely much higher, as these statistics are often undercounted for unauthorized immigrants. The latest estimate of the total number of unauthorized immigrants living in the US from the Pew Research Center was around 10.5mn in 2021, but the latest data from US CBP suggests that the total number living in the US has now surpassed the peak of 12.2mn that was recorded in 2007.

Republican governors have responded to the high number of migrant crossings at the US-Mexico border by busing migrants to blue states and cities such as New York City, New Jersey and Chicago, IL, which are all struggling with the financial cost to absorb and integrate new migrants. New York City spent an estimated $1.7bn on shelter, food, and other services through the end of July 2023, while Chicago estimates it will have spent $255.7mn between August 2022 and the end of 2023.¹⁷ The Pew Research Center estimates that the six states with the largest unauthorized immigrant populations in 2021 were California (1.9mn), Texas (1.6mn), Florida (900k), New York (600k), New Jersey (450k) and Illinois (400k).

Figure 27: Annual Southwest land border encounters since 1990

Number of encounters by fiscal year, from Oct to Sep. In millions.

Source: U.S. Customs and Borders Protection. Note only encounters made by U.S. Border Patrol at the Southwestern land border are counted.

Figure 27: States with the most unauthorized immigrants

US unauthorized immigrant population by state, 2021.

Source: Pew Research Center. Estimates based on augmented US Census Bureau Data.

7) The rise of Gen Z as a voting force

Gen Z is estimated to account for nearly 20% of votes in the 2024 election, and they reflect the growing racial and ethnic diversity of the US electorate. In 2024, Gen Z will make up over 40mn potential voters, including 8mn who will have newly reached voting age since 2022.¹⁸ The 2022 elections were the first midterm contest in which Gen Z made up the entire 18-24 cohort of potential voters, and they turned out to vote in historic numbers. While turnout for the 2020 elections was lowest among Gen Z voters ages 18 to 24 at 51.4%, trends have shifted over the past two years. Gen Z boasted the highest voter turnout as measured by generation for the 2022 midterm elections. According to the US Census’ Current Population Survey Voting and Registration Supplement, 28.4% of 18–24-year-olds cast a ballot in 2022 compared to 23% of millennials, 23.5% of Gen X and 27.9% of baby boomers who voted when each generation first made up the whole of that age group. Together with the youngest millennials, people ages 18-34 are poised to be a potential force in the next presidential election. Strong youth support for Democratic candidates has been a defining feature of recent elections, including the 2020 presidential race.

The CIRCLE Pre-2024 Election Youth Survey provides key insights on Gen Z priorities in the election cycle. A majority, or 57%, say they’re “extremely likely” to vote in 2024, and another 15% say they’re “fairly likely” to cast a ballot in the election, Among youth who are extremely likely to vote, 51% back the Democratic candidate, 30% the Republican, and 16% undecided, though groups like Black youth and youth without college experience, who are getting less information about the election and support to participate, are less likely to say they will cast a ballot. Youth overall prefer a Democratic candidate by a double-digit margin, but nearly a third are undecided and some groups of youth favor a GOP nominee. Issues like climate change and gun violence remain at the center of youth engagement with politics and elections, but the cost of living is, by a wide margin, young people’s top concern.

8) Projections for record political ad spending

The 2024 election cycle is projected to be the most expensive to date, with estimates of anticipated ad spending ranging from $10bn to $16bn across all platforms, or at least 30% higher than the spend on advertising in the 2019-2020 election cycle. According to the ad tracking firm AdImpact, ad spending will be 13% higher than the 2019-2020 cycle’s record of $9.02bn, projecting $2.7bn to be spent on ads in the presidential race.¹⁹ They expect spending on the Presidential general election to be concentrated in seven key states—Pennsylvania, Arizona, Georgia, Michigan, North Carolina, Nevada, and Wisconsin. AdImpact further projected $2.1bn in ad spending on Senate races, $1.7bn in ad spending on House contests, $361mn in ad spending for gubernatorial elections, and $3.3bn spent on ads in various down-ballot races and other initiatives. Group M, one of the world’s largest paid advertising agencies, asserts that political ad revenue could reach $15.9bn in 2024 or $17.1bn including direct mail.²⁰

Campaign funding is distinct from political ad spending. Every presidential candidate is required to register with the Federal Election Commission (FEC) and file regular financial reports detailing their fundraising and campaign spending. The most recent campaign finance reports filed by key candidates running in the 2024 presidential election are the October 2023 quarterly reports, which cover all funds raised and spent through September 30, 2023. Trump had three times as much cash at $37.5mn compared to any of his rivals, according to his public filing with the Federal Election Commission.²¹ Biden, the Democratic National Committee and their joint fundraising committees filed that they had raised $71mn combined as of September 30, 2023.²²

9) Greater use of AI and social media influence

Advances in artificial intelligence (AI) and social media could sway public opinion in the upcoming election. AI technology could be used to generate deepfake images and spread misinformation, while the effective use of TikTok is seen as having the ability to influence Gen Z voters, who turned out at a higher rate than other generations to vote in recent elections.

Democratic-leaning independents are much more likely than Republicans and Republican leaners to support the government taking steps to restrict false information online (70% vs. 39%). There was virtually no difference between the parties in 2018, but the share of Democrats who support government intervention has grown from 40% in 2018 to 70% in 2023, while the share of Republicans who hold this view has not changed much. There is a similar gap between the shares of Democrats and Republicans who say technology companies should restrict false information online.

Figure 28: Democrats have become more supportive than Republicans of government restriction of false information online

% of U.S. adults who say…

Source: Pew Research Center. Survey of U.S. adults conducted June 5-11, 2023.

10) Foreign policy implications of Biden vs. Trump

US presidential elections rarely focus on foreign policy, but the election outcome could have outsized implications for foreign policy. The foreign policy of a second Trump administration could mark a return to a more transactional focus based on immediate events to generate political benefits, regardless of past precedents. During the campaign, Trump has stated that he would reduce defense aid to Europe and revise NATO, place further restrictions on trade with China, propose a 10% tariff across the board to place a “ring around the US economy” and propose deploying US Special Forces against Mexican cartels. Trump has said he plans to reinstate an executive order he issued in the final months of his first term, which was never fully implemented, that would allow him to more easily dismiss civil servants. In a little-reported document published on Agenda47 earlier this year, Trump said he would establish a “Truth and Reconciliation Commission,” which would, among other functions, publish documents related to “Deep State” abuses of power. He would also create a separate “auditing” body meant to monitor intelligence gathering in real time.²³ We highlight key foreign policy decisions initiated during the Trump administration in Figure 30.

Looking at the international views of Biden, they are largely positive. The Pew Research Center survey conducted in July 2023 shows that a median of 54% express confidence in Biden, while 39% say they lack confidence in him.²⁴ Overwhelmingly, respondents believe the US interferes in the affairs of other countries – a median of 82% say it does this a great deal or fair amount – but most also believe the US contributes to peace and stability around the world. Turning to international views on Trump, at the end of Trump’s term, the approval rating for the US stood at 30%. compared to 48% during his first year as president, according to Gallup surveys.²⁵ In the latest NYT/Siena College poll, the EU, Canada and UK have the least favorable views of Trump.

Figure 29: How the world views US leaders and political parties

Net favorability* rating of the following political figures and parties among adults in each country

Source: NYTimes/Siena College polls of 3,662 registered voters from Oct 22 to Nov 3

Figure 30: Timeline of Trump’s key foreign policy decisions

Source: CFR, J.P. Morgan Strategic Research

Monitoring EM elections in 2024

• Elections in Taiwan, India, South Africa, Romania and Mexico are the standouts that could have an impact on domestic macro and market outlooks.
• It remains to be seen whether Ukraine and Venezuela will hold elections as scheduled.
• Frontier markets suffering from balance of payments pressures and without market access face a heavy election calendar, with opposition parties seen as gaining ground.

This section of our research note is extracted from the publications EM economic outlook 2024: Sense and Sensibility published on Nov 22 by Aziz et al., and Emerging Markets Outlook and Strategy for 2024 published on Nov 21 by Oganes, Goulden et al.

2024 will see some important elections for large emerging market countries (see Figure 30). Elections in India, South Africa, Romania and Mexico are the standouts and could have an impact on domestic macro and market outlooks. In Mexico, the prospect of continuity (at the political party level) would keep potential populist policies and fiscal concerns in focus, even though markets may breathe a sigh of relief if polling remains clear cut in favor of the incumbent party in the lead up to elections. Romania is facing both domestic and European parliamentary elections, which could have fiscal implications, while South Africa’s national election is set to be a referendum on the ruling ANC party. Should the ANC require a coalition with some opposition parties to remain in power, it would have domestic macro and market implications. While general elections are still a few months away in India, the few state elections later this month will serve as a key litmus test for the ruling coalition government.

There are a lot more elections in frontier market economies, some with elevated balance of payments pressures (Pakistan, El Salvador), while others have active debt restructuring processes and IMF programmes (Senegal, Ukraine and Ghana). President Bukele remains the clear favorite in El Salvador, while the election outcome in the Dominican Republic will likely be closer. In both cases, we expect broad-based policy continuity, with the Dominican Republic continuing its business-friendly policies and El Salvador’s fiscal situation remaining a concern. Post sanctions removal, Venezuela’s presidential election will be in focus. Ghana’s presidential election is poised to be tightly contested given a backdrop of domestic and external debt restructuring, while elections in Senegal should be more straightforward. The election outcome is less clear in Pakistan, as a caretaker government is tasked with organizing a credible election process while adhering to IMF reform conditions and navigating sizeable external repayments.

Figure 31: EM’s 2024 election calendar

Source: National Democratic Institute, IFES, National election commissions, J.P. Morgan. *Exact date unconfirmed

Our EM equity strategy team has also examined the implications of the US election on the EM 2024 elections, including co-movement of EM and US equities, whether US fiscal dynamics could be mimicked in EM, and USD directionality as a driver for EM stocks. They have long held the view that the outlook for EM equities cannot be dissociated from political regimes. Most EM economies are poised to narrow fiscal deficits into next year even as aggregate growth is forecast to slow slightly. Our EM economists forecast the aggregate fiscal deficit as % of GDP for emerging markets to decline to -4.0% in 2024 from -4.2% this year. However, EM markets holding that should present twin deficits >2% of GDP by of the end of 2024 include: South Africa and Turkey in CEEMEA and Brazil, Chile, and Colombia in LatAm (EM Lighthouse: US Equity Gravitational Forces on EM, Pedro Martins Junior, 13 Dec 2024).

Elections by country

India: The general elections to elect a new government in India will be held in April-May 2024. This will be a key macro event for markets in that the outcome will have an important bearing on policy direction. The ruling National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP), with Narendra Modi as Prime Minister, will vie for a third term. The first-past-the-post election will be conducted for 543 parliamentary seats and an alliance with the majority will form the government. In the last general election in 2019, the BJP secured the highest 303 seats, followed by the Indian National Congress (INC) with 52 seats. As a precursor to the general elections, polls in five states are being conducted in November 2023 whose results should be declared in the first week of December.

Indonesia: Indonesia will hold both parliamentary and presidential elections next year to elect the president, vice president and members of national and regional legislative bodies. The newly elected members of the MPR will be sworn in on 1 October 2024, while the elected President and Vice President will be sworn in on 20 October 2024. The first round of presidential elections will be held on February 14, and if no presidential ticket pair gets more than 50%, there will be a second round election to be held on June 26. Based on 4 simulation surveys on the upcoming presidential election, the pair of Prabowo (Minister of Defense under Jokowi) and Gibran (Mayor of Solo, Jokowi’s son) are leading in the polls among the 3 candidate pairs.

Korea: A general legislation election will take place in April 2024 for a four-year term for law makers. The election results should frame the legislative policy environment of second half of President Yoon’s term, as the ruling party currently possesses a relatively minor share of the National Assembly. The election outcome is hard to predict given the uncertainties on the election agenda and candidacies. That said, our base case is for a continuity in macroeconomic policy stances after the election.

Taiwan: Taiwan’s upcoming presidential election will be held on January 13, 2024. Mr. Lai Ching-Te, who will run as the candidate for the ruling, traditionally pro-independence Democratic Progressive Party (DPP), has led in early opinion polls. Mr. Hou Yu-Ih will be the candidate for the main opposition party Kuomintang (KMT), which traditionally holds a benign cross-strait policy tone. In addition, Mr. Ko Wen-Je will run for the Taiwan People’s Party (TPP). Meanwhile, the KMT and TPP have agreed to team up and run a united campaign, which would pose a formidable challenge to the DPP. The Taiwan presidential election outlook will have significant implications on cross-strait and US-China relations for the coming years.

Romania: Romania faces super-elections in 2024, with European, local, general and presidential elections. The cost of those is already visible in higher pension expenditures, likely to be offset with tax hikes post elections. Polls show a continuation of the same parliamentary majority, so economic policies should keep the EU orientation.

South Africa: In South Africa national elections are set to take place sometime between May and August 2024. For the first time, the ruling ANC risks support dipping below the 50% mark, down from 57% achieved in 2019. While a significant share of registered voters currently is undecided, recent polling generally puts ANC support between 43% and 52%. In the event of a coalition between the ANC and smaller parties, the policy outlook would not change materially. However, policy uncertainty would significantly rise in the event of a tie-up with opposition party EFF.

Mexico: In Mexico, federal elections will take place on June 2nd with a full reshuffle of the Congress, plus nine state elections and the all-important Presidential contest. Preliminary polls give incumbent Morena a wide double-digit lead over opposition coalition FAM and the social democracy party MC. We expect Morena’s Claudia Sheinbaum to win (there is no reelection in Mexico) and keep Morena in power for another six-year term. Polls suggest both chambers will reflect a more balanced Congress that would prevent constitutional changes from populist Morena. Given the success of the AMLO administration on the back of strong electoral spending, we see Sheinbaum maintaining the same approach and thus keeping fiscal challenges.

El Salvador: 2024 general elections in El Salvador will be held on 4th February. The election is expected to be among the least contested in the region in that current President Bukele’s popularity should grant him a comfortable win and lead to policy continuity, including fiscal.

Dominican Republic: Dominican Republic’s 2024 general elections will take place on 19th May. While it is likely to be won by the incumbent President Luis Abinader of the Modern Revolutionary Party (PRM), a large joint opposition block could upset this result. In either case, business-friendly policy continuity is expected.

Pakistan: Elections are slated to be held in mid-February 2024, following the Election Commission’s decision to delay polls by three months to complete the re-delineation of constituency boundaries. According to opinion polls, former PM Imran Khan and the PTI party still have a significant lead over the incumbent party (PML-N), but his path to winning the elections and forming the next government is very challenging, considering the court indictments against Khan and mass departures in the PTI party. The caretaker government’s political will to maintain fiscal consolidation could be tested, but economic conditions are gradually improving.

Venezuela: A political agreement between representatives of Venezuela’s opposition and Maduro could pave the way for Venezuela’s presidential elections to take place in 2H24. The agreement’s electoral roadmap underpins that broad sanctions relief be granted by the US and also includes setting a process to lift bans on candidates. However, as the de facto leader of the opposition, who would be a potent electoral threat to Maduro, is still banned from running, there is uncertainty on the longevity of the political agreement and sanctions relief.

Ghana: 2024 elections will come against the backdrop of increased social pressures, high inflation, and a possible conclusion to the country’s debt revamp. These pressures could pave the way for the main opposition party (led by former president John Mahama) to regain power. However, we think it will be a tight contest between him and the current vice president, Mahamudu Bawumia, who is the candidate for the ruling New Patriotic Party (NPP). We see room for some fiscal slippage as was the case during the 2020 elections, but even in the event of a change in government, we do not see any significant change in policy, particularly as the country will remain under an IMF programme.

Senegal: Initial agitations about Senegal’s 2024 presidential election have been partly quelled after the incumbent President Macky Sall announced he will not seek re-election after serving two terms. Senegal’s economic fundamentals should continue to give the economy a boost for the next few years irrespective of the government of the day. The current Prime Minister (PM), Amadou Ba of the incumbent Alliance for the Republic party is the front-runner ahead of the February 2024 elections, while former PM, Idrissa Seck, runner-up at the 2019 elections is the main opposition.

Navigating the age of populism and its consequences

• After escalating post-GFC, populism has declined after peaking in 2018-2019; however, a heavy 2024 electoral cycle raises the possibility of a resurgence.
• In our view, populism has gone mainstream, with populist politics here to stay regardless of 2024 election outcomes due to structural social shifts.
• The persistently high inequality within countries, driven by rapid technological advancements, globalization, and financial markets deregulation, contributed to populism’s rise, but social media has helped amplify its messages.
• Nativism has returned, with anti-immigration populist leaders rising in Europe, while in the US, immigration will be a major wedge issue in the 2024 election.
• There is little evidence that populism has much economic impact in the short term outside of higher inflation. Over the long term, populists-led countries tend to experience lower growth, trade and financial openness and higher debt-to-GDP.
• In our view, the biggest tail risk remains the US election, where polls are suggesting a repeat of the 2020 Biden-Trump faceoff. The US election merits cautious positioning and/or outright hedging more so than any other election, in our view, due to its global implications.
• Our FX strategy colleagues see tariffs and a broadening of US-China conflict to be dollar positive events. CHF and JPY should also benefit from tariffs, while CNY, EUR, and MXN screen as being vulnerable to tariffs.
• Our US equity derivative colleagues expect VIX to generally trade higher in 2024 than in 2023, while US election uncertainty is an additional potential catalyst for market volatility, which is good for being long dispersion.

Populism’s dance: Slide to the left, right, and crisscross

Since the Global Financial Crisis (GFC), the rise of populism has been pronounced across both DM and EM countries. Pre-GFC, populism was seen as largely a Latin America phenomenon, but the GFC (2008-2009), Eurozone crisis (2009-2013), and Brexit vote and withdrawal (2016-2020) contributed to a rise in populism across DM countries.

2018-2019 marked an all-time high for populists in power. During that period, 16 countries were ruled by populist governments in places such as Italy (Lega/M5S government), Turkey (Erdogan), Venezuela (Maduro), India (Modi), Mexico (AMLO), and the US (Trump), amongst others. Since then, there has been a steady net decline, as several countries, such as the UK and US, retreated from their embrace of populism, but an upcoming heavy 2024 election calendar raises the possibility of a partial reversal in the recent downward trend (Figure 32). The outcomes of recent 2023 elections, where countries like Argentina, which voted in a populist right leader, and Slovakia, where a populist left could serve as a precursor to the forthcoming 2024 election cycle. Yet, the recent defeat of Poland’s populist right party after eight years of rule shows there may still be some hope yet against a populist resurgence.

Figure 32: Populists in power have come off all-time highs since 2018-2019

Share of 60 countries in sample

Source: Funke, Schularick, Trebesch (Kiel Institute Working Paper June 2022),
J.P. Morgan Strategic Research. Note: Share of populist governments in all governments in sample of (up to) 60 independent countries covering more than 95% of world GDP (in 1955 and 2015), 1900-2020. The authors consider any country-year in which a populist was the effective ruler (i.e., president, prime minister, or equivalent). Data after 2020 are strictly J.P. Morgan estimates.

However, regardless of 2024 election outcomes, populism politics are likely here to stay due to structural social changes that moved populism into the mainstream. Political scientist Cas Mudde lays out several structural social changes that have led to populism becoming more entrenched into politics, with the first due to growing inequality and individuals becoming more politically aware and informed, which created a more dissatisfied and vocal population. The second is that neoliberal economics, such as globalization, and international organizations, such as the EU, have made mainstream parties less effective and more similar, while a transformed media landscape (e.g., social media) has provided more access and coverage for populist politicians. Lastly, he argues that populist leaders have become more attractive options due to better leaders, organizations and propaganda.²⁶ As populism moves into the mainstream, they have made electoral gains, especially in Europe, with populists having recently boosted the number of parliamentary seats in Finland and the Netherlands.

Over the past decade, markets have become much more cautious of populist victories given the transformative policy changes often promised, such as significant shifts in fiscal, monetary and trade policy, which have led to unsustainable macro policies and/or the erosion of institutions. In this note, we explore the causes of the rise in populism, the economic consequences and provide an overview of trends to watch going into the 2024 election cycle. The most visible populist challenges confront the EU parliamentary elections in June and the US presidential/congressional elections in November as well as in several major EM countries (Mexico, India, and Indonesia). However, the US elections merit hedging more so than any other election, in our view, due to its global implications.

Defining populism and its root causes

Academic literature in recent years has converged on a consensus definition of populism—one that can be defined as a political style centered on the supposed struggle of “people vs. the elites.” ²⁷ This definition has become increasingly dominant and is now also widely used by populism researchers and economists.²⁸ According to a study by Manuel Funke, Moritz Schularick, and Christopher Trebesch, there are several advantages to this definition—it can be applied across time and regions, it does not depend on institutional features (e.g., presidential vs. parliamentary systems), and it can be applied to both emerging and advanced economies along with populists on the left and the right.

Our definition of populism aligns with the workhorse definition of populism as outlined by Funke, Schularick and Trebesch, who define a leader as populist if he or she divides society into just two groups—“the people” vs. “the elites”—and then claims to be the sole representative of the true people. Corrupt elites can be individuals, their political parties, and/or a country’s institutions, prioritizes national interests and citizens over international ones and immigrants, and tends to frame political relationships in highly antagonistic terms (see The Long-Term Strategist: Top long-term risks and what to do about them, Jan Loeys et al., 18 July 2023). Not all populism is of the same ideological tendency, and the relative strength of institutions in each country matters. We discussed the rise of populism as a paradigm shift at length in J.P. Morgan Perspectives: Paradigm Shifts; What Lies Ahead, Jan Loeys et al., 5 Apr 2019.

In our view, the rise of inequality has been a major contributor to the rise in populism and has become a key driver for assessing the implications for elections, as inequalities within countries are more likely to be experienced in citizens’ daily lives. The growth focus of political institutions of the past (the so-called “Washington Consensus”) has been challenged by persistently high income inequality and wealth distribution which, in turn, has led to a growing sense of economic insecurity amongst large segments of the population and the embrace of populist leaders across DM and EM economies. Moreover, the rising wealth gap between the private and public sectors in rich countries has important implications for states’ capacities to tackle inequality and climate change in the future.

Across developed and emerging economies, income inequality within countries has reached unprecedented levels in the postwar period. Inequality has grown at different speeds globally, but the trend is undeniable. The World Inequality Database finds that over the past four decades, global income inequality between countries has declined, but income inequality has risen dramatically within countries (Figure 19). The top 10% of the global population currently takes 52% of global income, whereas the bottom 50% earns 8.5% of it. Income inequality within the US is even more stark, with nearly 50% of the nation’s income going to the top 10% and 20% to the richest 1%, while the bottom half receives just 10%. Although Europe remains the least unequal region in the world, the richest 10% of Europeans earn twice as much as the poorest 50% of the population.

Figure 33: Global income inequality declined between countries, but income inequality has risen dramatically within countries

1980-2022; Between vs. within country inequality

Source: World Inequality Database

Global wealth inequalities are even more pronounced than income inequalities and contribute to future income inequality through capital income and inheritance. The poorest half of the global population barely owns any wealth at all at just 2% of the total, while the richest 10% of the global population own 76% of all wealth.²⁹ According to the World Inequality Report (WIR), wealth inequalities increased at the very top of the distribution, as the wealth of the richest individuals has grown at 6-9% per year since 1995, whereas average wealth has grown at 3.2% per year. During the same period, the share of global wealth possessed by billionaires has risen from 1% to over 3.5% in 2021. In a study on the relationship between inheritances and wealth inequality, researchers found that inheritances can account for more than 60% of US wealth inequality.

Over the past four decades, world nations have become significantly richer, but their governments have become significantly poorer. This trend was magnified by the Covid-19 pandemic, during which governments borrowed the equivalent of 10-20% of GDP. The current weak wealth position of governments has important implications for governments’ ability to tackle inequality in the future, such as the decline in intergenerational mobility and greater polarization in income distribution as well as other obstacles such as climate change.

Figure 34: Rise of private wealth and decline of public wealth in rich countries

1970-2022

Source: World Inequality Report 2022

Three interrelated factors have contributed to growing inequality—technological progress (e.g., the rise of automation), globalization, and financial markets deregulation. All three trends have generated winners and losers and have weighed on middle-class incomes and jobs, especially those who, because of their age, lack of skills, or education, were not able to adjust. In emerging economies, additional drivers of income inequality include accessibility of quality education and extensive labor market informalities. Corruption, and a failure to recapture growth after the commodities super-cycle have left many countries susceptible to anti-system messages, resulting in greater polarization, with populism moving from the margin into the mainstream, particularly in EM economies where global trade remains the main engine of growth. The more personalistic rule among countries with fragile institutions has also raised uncertainty and macro volatility fueling bouts of boom/bust cycles, which has been most apparent in Latin America (see J.P. Morgan Perspectives: Paradigm Shifts; What Lies Ahead, Jan Loeys et al., 5 Apr 2019).

While technological advancement and automation have been blamed for job displacements, populist leaders have also used immigration as a focal point in populist rhetoric, with many blaming immigration for the erosion of traditional jobs and also national identity. The number of anti-immigrant far-right populist leaders have increased in Europe and now rule in Italy and Hungary. Immigration will be a major issue in the upcoming US elections in November 2024. In the latest AP-NORC poll on the public’s priorities, concerns about immigration climbed to 35% from 27% last year, with a majority of Republicans (55%) saying the government needs to focus on immigration in 2024 versus 22% of Democrats. These figures are up from 45% and 14%, respectively, to December 2022. Moreover, swing-state voters overwhelmingly trust Trump more so than Biden on immigration.³⁰

Key electoral contests to monitor for the resurgence of populism

In our view, the biggest tail risk remains the US election, where polls are currently indicating a repeat of the 2020 Biden-Trump faceoff. Another former post-GFC populist regime that is slated for an election later this year is the UK, while in EM, elections are set to take place in India, Indonesia, and Mexico. A political agreement between representatives of Venezuela’s opposition and Maduro could also pave the way for Venezuela’s presidential elections to take place in 2H24 (Figure 35). Additionally, far-right parties are eyeing to gain seats in the June 6-9 EU parliament elections, where a supranational vote will take place across all 27 member states. However, the US election merits hedging more so than any other election due to its global implications, in our view.

Figure 35: Current and former post-GFC era populist regimes holding 2024 elections

Source: J.P. Morgan Strategic Research and Funke, Schularick, Trebesch (Kiel Institute Working Paper June 2022). *Note: Lega Nord follows a traditional right-wing populist strategy and MS5 uses a mix of right-wing and left-wing populist discourse with a tendency to the left but given dominance of right-wing rhetoric/policies during coalition’s 1.5 years in office, government as a whole coded as right-wing populist. **Venezuela’s populist regime is not new in the post-GFC era but added to table due to possibility of a 2024 election.

In the UK, a cost-of-living crisis, food shortages and increased poverty have led voters to increasingly blame Brexit for their economic woes. This dissatisfaction for Brexit, along with the prevailing circumstances, makes the prospect of UK voters to re-embrace right-wing populists increasingly unlikely. The top three concerns for UK voters include the economy, health and immigration, according to latest YouGov surveys. While Britain’s Office for National Statistics pointed to the COVID-19 pandemic, global supply chain disruptions and Russia’s invasion of Ukraine as the main drivers of inflation and subsequent cost-of-living crisis, a majority of voters blame Brexit for these same issues as well as record immigration. Nearly two-thirds of respondents in a recent poll said Brexit has been a factor in sky-high inflation and the cost of living crisis, with only 7% saying it has kept down prices. Another 53% of respondents said that leaving the EU had reduced the ability of the UK to control immigration.

Elections in India, Indonesia, and Mexico will matter more domestically, as results are unlikely to hold much global sway. Venezuela elections, if they happen, could pave the way for additional US sanctions relief which would be welcomed by market participants. Our EM colleagues hold the view that the removal of the secondary market bond trading restriction is likely to be a lasting change, even though restoration of the primary market and a path to restructuring are likely to only occur if 2H24 elections occur in a sufficiently credible fashion (see Venezuela: Harder tone, harder choices, Katherine Marney & Gorka Lalaguna, 8 Dec 2023).

Even if there is a resulting populist tilt, the European Parliament has little authority compared with national-level legislatures, as its lawmakers cannot unilaterally pass legislation and must instead agree to pass measures with the Council of the EU.³¹ While many voters could use the EU parliament elections as an opportunity to express their disappointment for mainstream politics by opting for a populist alternative, arguably the most important responsibility of the European Parliament is actually approving the European Council’s choice for president of the European Commission, a seat currently held by Ursula von der Leyen.

We see the US elections as being more consequential and meriting hedging more so than any other election, as a Trump victory could have broader macro implications, including through a series of executive orders that would dismantle or reverse many of Biden’s policies. Trump’s proposal for the imposition of a universal 10% tariff across the board would reignite trade wars with both friends and foes alike. His proposal to deploy US special forces into Mexico and even possibly launching military strikes into the country to battle Mexican cartels would disrupt economic relations with the US’s top trade partner. Trump’s plans to roll back the Biden administration’s efforts to encourage EV adoption and reverse proposed new pollution limits that would require at least 54% of new vehicles sold in the US to be electric by 2030 could undermine US automakers’ push into the EV space by delivering the competitive edge to foreign manufacturers despite more than $120bn in announced EV investments since the introduction of the Inflation Reduction Act. Trump has also said he would ramp up oil drilling on public lands and offer tax breaks to oil, gas, and coal producers. He has also repeatedly threatened to curb remaining military, economic and humanitarian support to Ukraine, along with withdrawing from NATO, although Congress recently passed a measure aimed to prevent any US president from unilaterally withdrawing the US from NATO without congressional approval in the latest passage of the National Defense Authorization Act.

Our FX strategy colleagues offer a framework for thinking through several channels heading into US elections that will impact FX via trade policy/tariffs, US-China relations, fiscal policy, and currency policy. Risk premia for FX through 2024 should be concentrated around risks of new tariffs, and they estimate 4-6% USD appreciation if universal 10% tariffs were to be introduced. Broadening of US-China strategic competition is also dollar-positive through growth channels. Tariff risk could support CHF and JPY, conditional on local factors and any perceived risks of tariffs contributing further to global inflation, while CNY should still net weaken in the event additional tariffs are imposed, but the ex-ante setup is different now vs 2018. In addition to CNY, the team’s objective vulnerability ranking cites EUR, MXN, and select EM Asia as having relatively elevated risks if additional tariffs come into view (see US Elections & FX: Mapping transmission from potential policies to USD, Patrick R Locke, et al., 27 Nov 2023).

Our US equity derivatives colleagues expect the VIX to generally trade higher in 2024 than in 2023, while being long dispersion should benefit from a US election year adding more uncertainty to the market. The extent of the VIX’s increase depends on the timing and severity of an eventual recession, which remains a live risk, and the timing of a potential volatility surge that could alleviate the structural short-dated volatility selling flows. Our US equity derivatives colleagues believe elections could add policy volatility, with potential implications for countries’ fiscal policy, business climate, and geopolitical stances. This could also buoy equity volatility – e.g., they note that over the past 50 years, S&P 500 realized volatility was ~2 points higher in US election years than in non-election years. Risk markets are currently priced for low risk, with the VIX trading ~13, below its long-term average of 18, and credit, term and equity risk premia are also below their long-term means. Hence, investors looking to position themselves for election uncertainty and the return of populism should position for higher risk premia and higher market volatility. Specifically, in equities, the team sees dispersion being a good trade during the 2024 US presidential election as it takes advantage of the heightened implied volatility before the election and the low realized volatility on the index when the election results rolled out (see 2024 Equity Derivatives Outlook: Volatility Forecasts and Trade Ideas, Marko Kolanovic et al., 8 Dec 2023).

Figure 36: VIX and dispersion performance during 2016 and 2020 US presidential elections

Source: JPM US Equity Derivatives Strategy

Long-term economic consequences of the rise in populism

Countries governed by populists tend to undergo serious financial and macroeconomic consequences, such as higher inflation and debt-to-GDP, due to transformational policy changes. Populists also tend to embrace higher tariff rates, which may translate to reduced international economic integration via trade. In a study of populist leaders from 1900 to 2020, economists Manuel Funke, Moritz Schularick, and Christopher Trebesch have found that populist leaders tend to create a drag on growth of about 1% pa after a short honeymoon period. They argued that even though there have been instances where some economies under populist leaders witnessed solid growth (e.g., Poland under PiS, Hungary under Orbán), on balance, their study suggests there are only very few populist regimes that could be associated with a sustainable long-term growth path. In this section, we summarize their findings on how populism impacts the economy.

Their study has shown that countries with populist leaders tend to see substantial declines in the economy where GDP per capita is 10% lower after 15 years compared to a plausible non-populist counterfactual. Funke, Schularick, and Trebesch found that countries tend to underperform after a populist comes to power, both compared to their long-run growth path and relative to global growth ranging from ‑0.5%-pts to -1.0%-pts (Figure 37), while negative effects become visible and increase over time exceeding 10%-pt after 15 years (Figure 38).

Figure 37: On average, countries tend to underperform after a populist comes to power in both the medium and long term

Average annualized growth gap in annual real GDP per capita after populists come to power

Source: Funke, Schularick, Trebesch (Kiel Institute Working Paper June 2022).

Figure 38: Real GDP paths decline significantly after populist governments enter into office relative to non-populist baseline

Projected gap

Source: Funke, Schularick, Trebesch (Kiel Institute Working Paper June 2022). Note: Graph uses location projections approach that compute impulse responses tracing the dynamic path of GDP per capita after a populist comes to power. All regressions include country fixed effects and five lags of the of real GDP per capita growth, global growth, inflation, banking and sovereign debt crisis controls, and an institutional/democracy quality index given by the first principal component of the V-Dem indices on judicial independence, election fairness and media freedoms as well as the Polity IV democracy score. Data for 60 countries since 1945 for the core sample of populist episodes.

They found that the growth gap persisted even after controlling for the quality of institutions, democracy, inflation, trade openness, and a variety of banking, currency, and other economic crises that may have brought the leader to power. In other words, the decline in growth was a result of decisions made by leaders employing populist strategies and not due to preexisting economic problems or democratic declines. When looking at the cumulative change of real GDP per capita after the start of a populist leadership episode, compared with the path after a non-populist government changeover, the study finds that real GDP per capita has declined significantly relative to the non-populist baseline after a short honeymoon period (i.e., after the first three years). This honeymoon period has been especially apparent under a left populist regime, while the decline in real GDP has been almost immediate under a right populist regime as seen in Figure 38. This populist boom and bust was a frequent feature of the populist cycles of Latin America in the 1960s-1990s, which were often characterized by transformative macroeconomic policies leading to high inflation and severe balance of payments crises and eventually political and economic crisis.³² This populist cycle is currently playing out in Argentina, where recently elected right-wing populist President Milei promised a shock adjustment to the economy and delivered two days after taking office a promise of deep spending cuts and a sharp devaluation of the Argentine peso. He has forewarned that economic activity will decline and inflation will rise in the short term (see Argentina: President Milei sets expectations clear: A draconian fiscal adjustment is required to avoid hyperinflation, 10 Dec 2023 and Argentina: Urgent package unveiled: The first set of economic measures under Milei, D. Pereira, et al.,13 Dec 2023).

Populists also tend to be economic nationalists, whether from the left or right, which have often translated into more restrictive shifts in trade policy. In their study of the effect of populism on economic integration, Funke, Schularick, and Trebesch used a synthetic control method that allowed them to quantify the effect of populism on economic performance relative to a synthetic doppelganger economy (i.e., the synthetic doppelganger economy continued to evolve in the same way that the populist economy would have without the election of a populist government). They found that under populist regimes, there tends to be a rise in protectionist measures via higher tariff rates and a decline in trade (via share of exports and imports in GDP) and financial openness (as measured by using the KOF Financial Globalization index) under populist regimes (Figure 36).

Figure 39: Under populist regimes, international economic integration via trade and financial openness tends to suffer

Trade and financial openness after populists take power (+/- 15 years)

Source: Funke, Schularick, Trebesch (Kiel Institute Working Paper June 2022).

Debt burdens and inflation also tend to increase under populist rule given that short-term growth is often prioritized over long-term sustainability. Funke, Schularick, and Trebesch found that debt levels have been 10%-pts higher during a populist episode compared to the synthetic doppelganger (Figure 40). On the monetary side, there is some evidence for rising inflation under populists, but with inflation rates rising more in the short run.

Figure 40: Populists tend to have more of a short-term impact on inflation and more longer-term impact on debt to GDP levels

Source: Funke, Schularick, Trebesch (Kiel Institute Working Paper June 2022)

Worsening democracy metrics depress equity returns over the long term

• Many countries, including the US, have recently been downgraded in democracy ratings, such as Freedom House’s Freedom of the World report and the Economist Intelligence Unit’s Democracy Index.
• Japan and most countries in DM Europe have not been downgraded.
• Our Long-Term Strategy team finds that equity returns have been ~ 5% pa lower over a 10yr period after countries were downgraded in democracy ratings compared to markets that have been upgraded and ~2.5% pa lower for countries where there was no rating change.
• The lower returns of downgraded countries consist of both weaker earnings growth and a weaker currency rather than lower PE multiples.

This summary revisits our Long-term Strategist report on Democracy metrics and equity markets, Alexander Wise and Jan Loeys, 21 October 2021. See the longer report for more details on the data, methodology and analysis.

Democracy and global freedom metrics on the decline since the Global Financial Crisis

The decline in democracy and global freedom has been a trend for 17 consecutive years, according to Freedom House and other independent surveys, and remains a concern in the upcoming cycle. There are some signs that the decline in democracy may be at a turning point, as the gap between the number of countries that registered overall improvements in political rights and civil liberties (34) and those that registered overall declines (35) for 2022 was the narrowest it has ever been. The gains were driven by more competitive elections as pandemic-related restrictions that affected freedom of assembly and freedom of movement were rolled back. There was also fresh evidence of the limits of authoritarian power, as key regimes faltered in their attempts to exert influence at international organizations and their internal governance flaws led to dramatic policy setbacks. Authoritarian influence at the United Nations and other international organizations faltered as democracies reaffirmed the value of multilateral engagement. However, the possibility of progress does not make it inevitable, as more countries are remaining ‘Partly Free’ instead of continuing their march to ‘Free’ status. Figure 41 shows the ebb and flow of democratization as tracked by Freedom House for the past 50 years.

Figure 41: Ebb and Flow of Democratization

Source: Freedom House, J.P. Morgan.

The Economist Intelligence Unit (EIU) Democracy Index finds that only 8% of the world’s population reside in a “full democracy,” compared with 8.9% in 2015, before the US was demoted from a “full democracy” to a “flawed democracy” in 2016. More than one-third of the world’s population live under authoritarian rule (36.9%), with a large share of them being in China and Russia, while 45.3% live in a democracy of some sort.

Figure 42: EIU’s 2022 Democracy Index

Source: EIU.

Countries downgraded for democratic changes tend to underperform those that are upgraded

While the effect of democracy upon stock market returns is theoretically ambiguous, the weight of the evidence from empirical studies of the economic and financial effects of democracy suggests that democratic improvements are supportive of both economic growth³³ and stock market returns.³⁴ That said, the EM space is littered with various types of political regimes, and it’s not immediately obvious that one produces higher growth than another. There are a number of EM economies, mostly in EM Asia, that have enjoyed robust and persistent growth under non-democratic systems; the most obvious being China. Yet, there are also plenty of growth disasters under autocratic rule, including North Korea and Myanmar. On one side, stable democracies may give rise to effective governance, promoting a dynamic and competitive economic environment in which businesses prosper. On the other side, a system of governance that does not prioritize and promote the interests of the people may instead become captured by special interests, such as those of corporates. These could induce legislators and regulators to raise barriers to entry and soften consumer protection and antitrust enforcement, allowing large corporates to raise profit margins, boosting share prices even as these measures weaken overall economic growth.

We consider the implications of these democratic changes for a long-term strategic investor and focus on the nature of the relationship in a way that is most informative for a long-term investor. To document the relationship between democracy ratings and returns, we implemented an event study design in which we examined stock market returns in countries in the periods after they experience an upgrade or downgrade in democracy ratings. We found statistically significant evidence that, on average, countries that are upgraded tend to exhibit higher long-term equity returns in subsequent years than countries that are downgraded, both in absolute terms and relative to the rest of the world. We document these return differences in both local-currency and USD terms. Robustness analysis using different empirical specifications and different data sources affirms the conclusions drawn in this exercise.

Stress testing upgrades, downgrades and no changes in democracy rating

To begin, we examined stock market USD returns in the years after a country experienced a democratic upgrade or downgrade in the Freedom House data. In a typical event study, one examines the period immediately after an event. In many cases, democratic conditions may have been deteriorating or improving in the years before the Freedom House ratings changed. Therefore, we think it is appropriate to examine returns data up to two calendar years prior to the official rating change in order to include this period in which changes may be occurring which will culminate in a rating change.

We report summary statistics for three samples of returns. The first sample includes all 10-year periods in which a country experienced a net upgrade in its democratic rating in the first three years. The second sample includes all 10-year periods in which a country experienced a net downgrade in its democratic rating in the first three years. The third sample includes all 10-year periods in which there was no net change in a country’s democratic rating. For the first two samples, we required that the democratic change occurred in the first three years to ensure that we excluded periods in which there was a late democratic change, without time for the consequences to be fully reflected in 10-year returns. Our results are very similar if we instead had required a democratic rating change in either the first year, or the first two years, of a 10-year period. Our results were also comparable when considering 5- or 15-year return windows instead of 10-year windows.

The mean and median returns after an upgrade were 11.6% and 12.3% pa, respectively, while the mean and median returns after a downgrade were 6.4% and 6.6% pa, respectively. The mean and median annual returns after no change were 9.2% and 9.0% pa, respectively – between the upgrade and downgrade figures. The t-statistic for a test of whether the means of the upgrade and downgrade samples were equal is 3.07, implying that the hypothesis may be rejected at the 1% level of significance. Relative to the distribution of returns after a country experiences an upgrade, the distribution of returns when a country experienced a downgrade had a more negative skew and is leptokurtic, implying that there is more severe downside risk. Overall, we find that the magnitude and number of rating changes did not matter. For example, countries with greater than one point democracy downgrades did not clearly perform worse than countries with one-point downgrades, and vice versa after upgrades.

Figure 43: Summary of results – Annualized median 10-year returns

%, 1972- 2020, annual. LCU = local currency unit. Relative USD returns is returns relative to the rest of the world over the same period of time.

Source: J.P. Morgan, Freedom House, MSCI.

The lower returns of downgraded countries consist of both weaker earnings growth and a weaker currency rather than lower PE multiples. In our analysis, we consider a decomposition of the USD equity price returns into price-to-earnings multiples and earnings per share. In Figure 41, we report PE multiple changes in the same three samples from above. For interpretative purposes, take the mean annualized change of 0.4% after an upgrade. If the initial multiple were 15, this would imply that the multiple would increase to approximately 15.61 after 10 years. The changes reported are both small in magnitude and statistically indistinguishable after upgrades and downgrades, indicating that our results are not driven by multiples.

Figure 44: Annualized 10-year changes in PE multiples after an
upgrade and a downgrade

%, 1972- 2020, annual.

Source: J.P. Morgan, Freedom House, MSCI

We find that the differences between upgraded and downgraded countries in price returns were driven by differences in earnings growth. In Figure 45, we report the changes in earnings per share in the same three samples from above. The mean and median annualized changes in earnings per share after an upgrade were 9.3% and 9.8% pa, respectively, while the mean and median annualized changes in earnings per share after a downgrade were 4.5% and 5.3% pa, respectively. These results dovetail with other research mentioned earlier, such as Acemoglu et al. (2019), which indicated that worsening democracy metrics have a negative impact on economic growth.

Figure 45: Annualized 10-year changes in earnings per share after an upgrade and a downgrade

%, 1972- 2020, annual

Source: J.P. Morgan, Freedom House, MSCI

Market implications

Our results indicate that changes in democracy ratings have been a valuable signal of future long-term asset returns. It is apparent that the equity markets of countries that are downgraded tend to underperform those that are upgraded. There is also robust evidence that downgraded countries persistently underperform countries that experience no democratic change. In USD returns, we find that stock markets in countries that are downgraded tend to underperform stock markets in countries that are upgraded in the subsequent years by ~5% pa over a 10-year period and tend to underperform stock markets in countries with an unchanged rating by ~2.5% pa over a 10-year period. These observations reflect the fact thatdowngraded countries tend to exhibit lower local-currency stock market returns due to weaker earnings growth and experience larger currency depreciations.

A natural caveat is that strategic investors should use democracy metrics only as an added signal to the other signals they use to make long-term country allocations. However, in our previous research, we found there are relatively few effective leading long-term signals. From a strategic point of view, using relative multiples (buying low, selling high) has not been effective. Longer term, potential real GDP growth differences correlate well with relative equity returns, but only between DM and EM. But these differences must be forecast to project future relative returns. The variables that explain relative country equity returns, such as contemporaneous EPS growth and P/E changes, themselves have to be forecast – an equally demanding endeavor.

Appendix

J.P. Morgan Research

Strategic Research

Geopolitical Update: A fragmented and fractured world: Geopolitical resilience remains elusive, Joyce Chang et al., 30 October 2023

Economic Research

Up, up and away: Assessing government debt sustainability, Joseph Lupton and Alexander Wise, 22 February 2023

Emerging Markets Economic Research

Taiwan 2024 election primer: Why is it important?, Grace Ng, Haibin Zhu & Tingting Ge, 3 January 2024

Mexico: The 2024 Electoral Watch - An eventful start, Gabriel Lozano, 5 December 2023

Ten questions about China in 2024, Haibin Zhu et al., 3 January 2024

Mexico 2024 outlook: Reckoning time, Gabriel Lozano and Steven Palacio, 30 November 2023

Venezuela: Harder tone, harder choices, Katherine Marney and Gorka Lalaguna, 8 December 2023

South Africa: Tough policy choices in an election year, Sonja Keller and Sthembiso Nkalanga, 21 November 2023

Ghana: Debt restructuring and then elections, Gbolahan Taiwo, 21 November 2023

Venezuela: Back in the game?, Katherine Marney, 21 November 2023

PODCAST: SA 2024 Election series – discussion with the UDM & ActionSA, Sonja Keller, Inga Galeni, Funeka Maseko & David Aserkoff, 13 November 2023

Asia Corporate Research

South and Southeast Asia Corporates: Sunnier Down South, Soo Chong Lim et al., 4 January 2024

Commodities Research

2024 Commodities Outlook, Natasha Kaneva et al., 30 November 2023

Global Markets Strategy

The J.P. Morgan View – Global Asset Allocation: Staying the course into 2024, JPM Global Markets Strategy, 20 December 2023

Global FX Strategy

US Elections & FX: Mapping transmission from potential policies to USD, Patrick R Locke, et al., 27 November 2023

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The Trumpist Manifesto: The Republican struggle for a second-term foreign policy, Majda Ruge and Jeremy Shapiro, European Council on Foreign Relations, 4 December 2023

Threats to American Democracy Ahead of an Unprecedented Presidential Election, PRRI, 25 October 2023

Trump is attacking electric vehicles. Automakers already bet their future on them, Nathaniel Meyersohn, CNN, 29 September 2023

Trump Is Winning Over Swing-State Voters Wary of Biden’s Economic Plan, Nancy Cook and Gregory Korte, Bloomberg, 19 October 2023

Trump's foreign policy: rethink NATO, troops to Mexico, boost tariffs, Gram Slattery, Reuters, 18 December 2023

U.S. Party Preferences Evenly Split in 2022 After Shift to GOP, Jeffrey M. Jones, GALLUP, 12 January 2023

Voter turnout, 2018-2022, PEW Research Center, 12 July 2023

Voting and Registration in the Election of November 2020, United States Census Bureau, April 2021

Voting Statistics, US Elections Project, 2022

World Inequality Report 2022, Lucas Chancel, Thomas Piketty, Emmanuel Saez & Gabriel Zucman, World Inequality Lab, 2022

Youth and the 2024 Election: Likely to Vote and Ready to Drive Action on Key Political Issues, Peter de Guzman and Alberto Medina, CIRCLE; Tufts – Tisch College, 29 November 2023

Strategic Research

J.P. Morgan Perspectives

J.P. Morgan Perspectives: AI and Cybersecurity: New Tech, New Threats, Amy Ho et al., 27 November 2023

J.P. Morgan Perspectives: Global housing: The great supply and demand imbalance, Joyce Chang et al., 16 November 2023

J.P. Morgan Perspectives: Navigating China’s financial markets, Joyce Chang et al., 6 September 2023

J.P. Morgan Perspectives: Food Security and Climate Change: The Makings of a Perfect Storm, Joyce Chang et al., 10 August 2023

J.P. Morgan Perspectives: The great supply chain disruption: ASEAN’s rise, India’s potential, USMCA and Chino-Latino flows, Joyce Chang et al., 23 June 2023

J.P. Morgan Perspectives: ESG and Supply Chain Risks: Putting the Spotlight on the “S” and “G” in ESG, Joyce Chang et al., 2 May 2023

J.P. Morgan Perspectives: The state of global gender balance in 2023, Joyce Chang et al., 7 March 2023

J.P. Morgan Perspectives: Japan’s Big Exit: Ten Questions about Japan’s Regime Change, Joyce Chang et al., 31 January 2023

J.P. Morgan Perspectives: ESG in the USA: The Disunited States, Joyce Chang et al., 22 November 2022

J.P. Morgan Perspectives: Cyber: The new frontline of geopolitics, Joyce Chang et al., 21 November 2022

J.P. Morgan Perspectives: Food Insecurity: A New Normal, Joyce Chang et al., 20 September 2022

J.P. Morgan Perspectives: Goodbye to Negative Yields, Joyce Chang et al., 15 June 2022

J.P. Morgan Perspectives: China’s Financial Markets: Long-term opportunities meet near-term challenges, Joyce Chang et al., 7 June 2022

J.P. Morgan Perspectives: Mind the gap: The pandemic’s scar on gender parity, Joyce Chang et al., 2 March 2022

J.P. Morgan Perspectives: ESG Outlook: Advancing Climate Innovation – The Road to 2050, Joyce Chang et al., 22 Feb. 2022

J.P. Morgan Perspectives: ESG 2022: Energy crunch challenges Net Zero transition, Joyce Chang et al., 16 December 2021

J.P. Morgan Perspectives: Post-Pandemic Regime Change: The Great Acceleration, Joyce Chang et al., 14 December 2021

J.P. Morgan Perspectives: Red Flags on Asia Housing, Joyce Chang et al., 18 November 2021

J.P. Morgan Perspectives: Is the housing market due for a correction?, Joyce Chang et al., 21 September 2021

J.P. Morgan Perspectives: Cyber Epidemic, Joyce Chang et al., 10 August 2021

J.P. Morgan Perspectives: The return of Commodities, Joyce Chang et al., 19 July 2021

J.P. Morgan Perspectives: ESG investing 2021: Going faster, deeper, broader, Joyce Chang et al., 13 May 2021

J.P. Morgan Perspectives: The widening gender gap: COVID-19 takes a toll, Joyce Chang et al., 5 March 2021

J.P. Morgan Perspectives: Digital transformation and the rise of fintech: Blockchain, Bitcoin and digital finance 2021, Joyce Chang et al., 18 February 2021

J.P. Morgan Perspectives: Build Back Better to Boost ESG, Joyce Chang et al., 16 December 2020

J.P. Morgan Perspectives: Can EM Save 60/40?, Joyce Chang et al., 2 December 2020

J.P. Morgan Perspectives: Not Business as Usual: The Rise of Stakeholderism, Joyce Chang et al., 5 October 2020

J.P. Morgan Perspectives: The Credit Crisis that Wasn’t: The Returns Crisis that Looms, Joyce Chang et al., 21 September 2020

J.P. Morgan Perspectives: Pandemic Accelerates Paradigm Shifts, Joyce Chang et al., 8 July 2020

J.P. Morgan Perspectives: ESG and COVID-19: Friends or Foes?, Joyce Chang et al., 18 May 2020

J.P. Morgan Perspectives: Achieving Gender Balance 2020: Why the Disparity?, Joyce Chang et al., 6 March 2020

J.P. Morgan Perspectives: Blockchain, digital currency and cryptocurrency: Moving into the mainstream?, Joyce Chang et al., 21 February 2020

The State of ESG in 2020, Joyce Chang, 5 February 2020

J.P. Morgan Perspectives: What if US yields go to zero?, Joyce Chang et al., 23 January 2020

J.P. Morgan Perspectives: Climate Changes ESG Investing, Part II, Joyce Chang et al., 10 December 2019

J.P. Morgan Perspectives: The rise of the corporates: Is a triple-B cliff on the horizon?, Joyce Chang et al., 1 October 2019

J.P. Morgan Perspectives: China’s index inclusion: A milestone for EM as an asset class, Joyce Chang et al., 12 September 2019

J.P. Morgan Perspectives: The rise of the corporates: Buybacks at an inflection point?, Joyce Chang et al., 17 July 2019

J.P. Morgan Perspectives: ESG Investing 2019: Climate changes everything, Joyce Chang et al., 30 May 2019

J.P. Morgan Perspectives: Leaving LIBOR: The Long Road Ahead, Joyce Chang et al., 30 April 2019

J.P. Morgan Perspectives: Paradigm Shifts: What Lies Ahead, Joyce Chang et al., 5 April 2019

J.P. Morgan Perspectives: Achieving Gender Balance 2019: Progress, Opportunities and Challenges, Joyce Chang et al., 1 March 2019

J.P. Morgan Perspectives: Made in China 2025: A New World Order?, Joyce Chang et al., 31 January 2019

J.P. Morgan Perspectives: Geopolitics and Markets: Risks on the Rise, Joyce Chang et al., 1 November 2018

J.P. Morgan Perspectives: 20 Years After the Asia Financial Crisis: How Is EM Faring?, Joyce Chang et al., 4 October 2018

J.P. Morgan Perspectives: Ten Years After the Global Financial Crisis: A Changed World, Joyce Chang et al., 10 September 2018

J.P. Morgan Perspectives: Investing in gender balance: Opportunities and challenges, Joyce Chang et al., 25 May 2018

J.P. Morgan Perspectives: ESG Investing Goes Mainstream, Joyce Chang et al., 9 May 2018

J.P. Morgan Perspectives: Decrypting Cryptocurrencies: Technology, Applications and Challenges, Jan Loeys et al., 9 February 2018

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Long-term Strategy

The Long-term Strategist: What have I learned so far on strategic investing?, Jan Loeys, 5 December 2023

The Long-term Strategist: Lowering our long-run US bond yield forecast, Alexander Wise and Jan Loeys, 28 November 2023

The Long-term Strategist: Ten more strategic questions, Jan Loeys and Alexander Wise, 9 November 2023

The Long-term Strategist: US-China de-risking, long-term inflation and interest rates, Alexander Wise and Jan Loeys, 23 October 2023

The Long-term Strategist: Building Strategic Asset Allocation 2023, Jan Loeys and Alexander Wise, 10 October 2023

The Long-term Strategist: Strategic investing questions, by the dozen, Jan Loeys and Alexander Wise, 26 September 2023

The Long-term Strategist: The debate on the long-term outlook for real interest rates, Alexander Wise and Jan Loeys, 2 August 2023

The Long-term Strategist: Top long-term risks and what to do about them, Jan Loeys, 18 July 2023

The Long-term Strategist: The de-dollarization risk scenario, Alexander Wise and Jan Loeys, 16 June 2023

The Long-term Strategist: Real yields along the US curve: Long-term forecasts, Alexander Wise and Jan Loeys, 13 March 2023

The Long-term Strategist: Real bond yields in DM: Long-term projections, Alexander Wise and Jan Loeys, 21 February 2023

The Long-term Strategist: Long- vs short-term risk, Alexander Wise and Jan Loeys, 1 February 2023

The Long-term Strategist: Industrial policy, deglobalization and strategic asset allocation, Alexander Wise and Jan Loeys, 27 January 2023

The Long-term Strategist: Long-term forecasts: Update January 2023, Alexander Wise and Jan Loeys, 6 January 2023

The Long-term Strategist: Forecasting long-term US equity returns with a neural network, Alexander Wise and Jan Loeys, 20 November 2022

The Long-term Strategist: Where are we in Regime Change? Macro volatility, deglobalization, and secular rise in yields, Jan Loeys and Alex Wise, 8 November 2022

The Long-term Strategist: Long-run economic growth forecasts, Jan Loeys and Alex Wise, 10 October 2022

The Long-term Strategist: Bigger questions, shorter answers, Jan Loeys and Alex Wise, 21 June 2022

The Long-term Strategist: What to do with 60/40?, Jan Loeys and Alex Wise, 16 June 2022

The Long-term Strategist: How good are long-term forecasts?, Alex Wise and Jan Loeys, 14 June 2022

The Long-term Strategist: Long-term forces point to higher US bond yields, Alex Wise and Jan Loeys, 4 April 2022

The Long-term Strategist: A demographic reversal to start pushing real interest rates up, Jan Loeys and Alex Wise, 2 March 2022

The Long-term Strategist: Eight clips on strategic questions, Jan Loeys, Shiny Kundu and Alex Wise, 17 February 2022

The Long-term Strategist: Is thematic investing worth it?, Jan Loeys, Shiny Kundu and Alex Wise, 18 January 2022

The Long-Term Strategist: Long-Term FX Forecasts, Alex Wise and Jan Loeys, 14 December 2021

The Long-term Strategist: Democracy metrics and equity markets, Alex Wise and Jan Loeys, 21 October 2021

The Long-term Strategist: Inflation, markets and the end of the Great Moderation, Jan Loeys and Shiny Kundu, 27 September 2021

The Long-Term Strategist: Commodity-linked assets as a long-run inflation hedge, Jan Loeys and Shiny Kundu, 28 July 2021

The Long-term Strategist: Will US market exceptionalism last?, Jan Loeys and Shiny Kundu, 24 June 2021

The Long-term Strategist: Short As on long-term Qs, Jan Loeys and Shiny Kundu, 19 April 2021

The Long-term Strategist: Our Strategic Portfolio, Jan Loeys and Shiny Kundu, 5 March 2021

The Long-term Strategist: Empirical models of long-term US equity returns, Shiny Kundu and Jan Loeys, 1 March 2021

The Long-term Strategist: Can EM solve the 60/40 problem?, Jan Loeys and Shiny Kundu, 2 December 2020

The Long-term Strategist: Business concentration, Jan Loeys and Shiny Kundu, 30 September 2020

The Long-term Strategist: The international 60/40 problem and US Hybrids, Jan Loeys and Shiny Kundu, 29 September 2020

The Long-term Strategist: Fallen Angel and Buybacks: Strategy Update 2020, Jan Loeys and Shiny Kundu, 28 September 2020

The Long-term Strategist: 60/40 in a zero-yield world, Jan Loeys, 30 June 2020

The Long-term Strategist: De-globalization Update 2020, Jan Loeys and Shiny Kundu, 23 April 2020

The Long-term Strategist: Some Longer-term Consequences of Covid-19 Crisis, Jan Loeys and Shiny Kundu, 9 April 2020

The Long-term Strategist: Zero US yields, almost there, Jan Loeys and Shiny Kundu, 11 March 2020

The Long-term Strategist: Why long term?, Jan Loeys and Shiny Kundu, 25 February 2020

The Long-term Strategist: Bonds time diversify much better than you think, Jan Loeys and Shiny Kundu, 14 February 2020

The Long-term Strategist: Financial repression, risk aversion and zero yields, Jan Loeys and Shiny Kundu, 24 January 2020

The Long-term Strategist: Why invest on Climate Change?,
Jan Loeys, Shiny Kundu and Mika Inkinen, 10 December 2019

The Long-term Strategist: Do BBs still offer better returns?,
Jan Loeys and Shiny Kundu, 3 October 2019

The Long-term Strategist: Buybacks and the investor, Jan Loeys and Shiny Kundu, 18 July 2019

The Long-term Strategist: What if the US joins the Zero Yield world?, Jan Loeys and Shiny Kundu, 12 July 2019

The Long-term Strategist: Climate change investing, Jan Loeys and Shiny Kundu, 30 May 2019

The Long-term Strategist: De-globalization, Jan Loeys, Shiny Kundu, and Joseph Lupton, 5 April 2019

The Long-term Strategist: Small Caps: A Strategic Overweight, Jan Loeys, Shiny Kundu and Eduardo Lecubarri, 15 February 2019

Click here for more Long-term Strategy Research