2012 isn’t just a US election year—globally it’s an active election year. Here, we take a look at some key upcoming elections.
A Political Sweet Spot
One thing’s certain about the US’s 2012 political landscape: With elections in the offing, rhetoric will be fast and furious—it already has been, and the year’s still young. But talk is one thing—action is another.
And legislative action is something you get less of in the back half of presidents’ terms. Why? Presidents typically lose relative power in mid-terms, which typically leads to a more gridlocked Congress. The risk of legislated redistribution of money (property rights, regulation) is lower; hence, legislative risk aversion is diminished, helping ease risk aversion overall—which is one reason stocks on average are more uniformly positive in years three and four with better than average returns.
Another interesting historical precedent—the US hits a particular sweet spot this year. Of the four possible election outcomes (outlined in Exhibit 1), market returns in years we either re-elect a Democrat or newly elect a Republican are historically stronger than in the other scenarios. And like it or not, it’s guaranteed we do one of those two things this year.
Exhibit 1: Election Versus Re-Election—Average S&P 500 Returns
Source: Global Financial Data, Inc., S&P 500 total return as of 12/31/2011.
Does any of this guarantee an up year in the markets? Not necessarily—there’s always the possibility something unexpected derails markets. But it’s one more reason (on a fairly long list) we think markets likely have a strong 2012.
Putin Up a Front
Protests swept through Moscow this week as Russia inches closer to its March 4 presidential election. Anti-Putin protesters accused (probably with decent reason) the former president and current prime minister of masterminding election fraud and vote-rigging in December’s parliamentary elections. However, the protests weren’t all one-sided. Pro-Putin protestors, allegedly arranged by his United Russia party, also took to the streets. Both groups reported they had the larger show of force (and therefore popular opinion). However, absent a legitimate challenger to Putin (a tall order, for myriad reasons), it’s likely the status quo remains—meaning Putin’s return to the presidency in March. We’d prefer Russia have a more transparent government and follow more pro-market policies, but then again, four more years of Putin means four more years of great photo ops like these.
Merkozy or Merkollande?
On April 22 (and May 6, assuming a runoff), incumbent French President Nicolas Sarkozy takes on François Hollande, who leads current polling and is widely expected to win.
What would a Hollande presidency mean for France? Like Sarkozy, Hollande wants a financial transactions tax, but he disagrees with Sarkozy’s plan to shift the tax burden from businesses to consumers. Instead, he proposes taxing banks’ profits, streamlining income taxes and adding a 45% rate for incomes above €150,000. They also differ over labor reforms. Sarkozy proposes requiring large companies to devote 5% of jobs to apprenticeships. Hollande, however, wants to subsidize 150,000 new jobs, reallocate another 60,000 (hiring young employees to train under and eventually replace older public-sector workers) and move the retirement age back to 60. Overall, though these plans seem a step back from recent free-market reforms, it’s far from certain they pass Parliament, and (like any politician) Hollande could moderate once elected.
As for France’s eurozone approach, both candidates are pro-euro, pro-Eurobond and pro-fiscal compact—in theory. But Hollande thinks France got a raw deal in the current draft, and he’ll likely seek to renegotiate if he takes office (not coincidentally, German Chancellor Angela Merkel is campaigning for Sarkozy). Hollande’s opposition to the current draft likely isn’t a game-changer though—he’d be one of many leaders less than thrilled with it, and it already seemed likely to get watered down or even fizzle out en route to ratification.
Electioneering and Political Wrangling Elsewhere
Taiwan’s incumbent President Ma Ying-jeou has already won re-election. Mexican voters head to the polls in July. Largely a figurehead, Turkish President Abdullah Gül is up for reelection in August. And South Korea—with its often virulent form of politicking—holds two elections: parliamentary in April, followed by December’s presidential election. (Hopefully, they’ll avoid tear gas and fisticuffs this time) Greece also faces elections—though the timing seems to hinge on the completion of debt talks.
And yet Greek candidates are largely leaving debt-haircut talks to unelected caretaker Prime Minister Lucas Papademos’s government. In fact, elections previously scheduled for February have been delayed until April—presumably to let the unelected guy do the really unpopular stuff. (Politicians!)
What’s more, in March, China’s voters will go to the polls to freely determine the country’s leadership, due to take the reins in Q1 2013. Just kidding! The party leadership change, like all things political in China, will be dictated to the people. But even (or especially) in this authoritarian nation, leaders want happy people during power transitions—and economic growth is a primary tool.