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The Elections Across Asia-Pacific Set to Impact Markets in 2022

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(Bloomberg) — Russia’s invasion of Ukraine and impending Federal Reserve rate hikes have given stock traders in Asia a lot to contend with already. Their next challenge is to navigate a spate of elections across the region.

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Political incumbents are under pressure in countries reeling from surging inflation and commodity prices even as they struggle with the lingering economic and health costs of the pandemic.

South Koreans go to the ballot box on Wednesday to choose a new leader in the first presidential election in five years. The coming months will also see Philippine voters elect a successor to President Rodrigo Duterte, with the son of the country’s former dictator leading the polls.

Australia may have its sixth prime minister in a decade in polls likely in May, while Japan’s Fumio Kishida faces another test at upper house elections in summer.

Asia’s stock benchmark has slumped more than 7% this year, clobbered by China’s regulatory crackdowns and a implosion in tech shares with the Fed set to embark on a tightening path. The measure has slightly outperformed global stocks.

Here’s a look at what the most prominent races in the Asia-Pacific region mean for markets.

South Korea: March 9

Investors are on tenterhooks with the two leading candidates neck-and-neck in the March 9 poll to choose a successor to President Moon Jae-in.

Both are courting Korea’s growing horde of retail traders. The ruling Democratic Party’s Lee Jae-myung has promised to end tax on securities transactions, and wants the country’s pension fund to buy more stocks. His rival Yoon Suk-yeol of the People Power Party wants to end capital gains tax on share sales. Both promise to build millions of apartments.

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A win for Lee may boost renewable energy and stocks involved in space technology. Former top prosecutor Yoon is seen as favorable for nuclear power stocks, but his call for deeper ties with the U.S. and expansion of the Thaad missile shield could hurt shares of companies sensitive to Chinese spending.

Hong Kong: May 8

With Hong Kong experiencing its worst Covid-19 outbreak, the election for chief executive has been postponed to May 8. No major officials, including incumbent Carrie Lam, have announced their candidacy yet.

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The city’s leader is selected by an elite group of 1,500, so market impact is likely to be incremental. Stocks are more likely to be impacted by Covid restrictions and currency woes as the Fed tightens, but attention will be on who registers their candidacy, with speculation some heavy-hitters from the financial sector may run.

Philippines: May 9

The May 9 election to succeed Duterte will be the sixth presidential elections since dictator Ferdinand Marcos was ousted in 1986, and the front-runner in this one is his son Ferdinand Marcos Jr., a former senator and governor. Rivals include boxer-turned-Senator Manny Pacquiao and economists’ favorite, Vice President Leni Robredo.

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The poll is likely to boost stocks as campaign spending ramps up, with the benchmark Philippine Stock Exchange Index performing well before and after past presidential elections.

While economic policies haven’t featured heavily in public debate, largess from candidates helps to add a tailwind to gross domestic product of 1-2% during election years, according to Cristina Ulang, an analyst at First Metro Investment Corp.

Australia: By May 21

Prime Minister Scott Morrison, who has led the country since 2018, will face off against the Labor Party’s Anthony Albanese by May 21. A date has yet to be set.

Morrison, who is highlighting the strong economy and promises of future tax cuts, is performing poorly in the polls amid dissatisfaction with his government’s handling of the pandemic.

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Albanese is keeping the focus on the government’s failings rather than Labor policies, but Morrison pulled off a surprise win at the 2019 election, spurring rallies in banking, real estate and health-insurance shares.

Japan: June/July

Kishida’s government faces upper house elections after the new leader beat higher profile contenders for the top job in the ruling party late last year.

A win would cement his position atop the Liberal Democratic Party and allow him to begin implementing his vision of “new capitalism,” which investors fret could include higher capital gains taxes. While he is little-loved by markets, spending ahead of the vote could be supportive.

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Kishida will seek to boost the economy by implementing an already-approved 36 trillion yen ($312 billion) extra budget ahead of the vote, SMBC Nikko Securities Inc. Chief Economist Junichi Makino wrote. Travel subsidies will likely be revived ahead of May holidays as virus restrictions are lifted — something sure to boost shares in reopening stocks.

And more…

That’s just the main races, with political risks for traders in destinations such as India, where Prime Minister Narendra Modi faces state elections that are underway, and Thailand set for gubernatorial elections by mid-year.

And while one-party China faces no election risk, there will be intense focus on the 20th Party Congress toward the end of the year, when Xi Jinping is expected seek a third term as leader.

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