On Saturday, Taiwan will fire the starting gun on a succession of elections in the majority of the world’s most important economies and financial markets. To say the 2024 global electoral calendar is a busy one would be an understatement.
More than 4 billion people in around 70 countries will go to the polls. According to Bank of America, nations accounting for 60 per cent of global economic output, 80 per cent of global stock market capitalisation and 40 per cent of the world’s population are holding elections.
The geographic breadth of the exercise in democracy is remarkable. Elections for the European parliament across the European Union’s member states in June will determine whether the rise in support for eurosceptic and populist parties will stymie the enlargement of the bloc. Voters in many African nations, notably South Africa, will also cast their ballots, while important municipal elections will be held in Brazil and Turkey.
However, the immediate focus is on Asia. Indonesia will hold a crucial presidential and parliamentary election next month, while a general election in India will take place over several weeks in April and May. Both countries – whose combined population is nearly 1.7 billion people – are making high-stakes bets on brisk growth that hinge crucially on their ability to successfully exploit geopolitical realignments and renewable energy-related shifts in the global economy.
Three leading Asian economies – Taiwan, India and South Korea – are heading to the polls this year. Each of them plays a crucial role in the stock markets of developing nations at a time when sentiment towards China has deteriorated sharply.
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What Taiwan’s presidential election will mean for China, the US and the world
What Taiwan’s presidential election will mean for China, the US and the world
The three economies have a combined weighting of 45 per cent in the MSCI Emerging Markets Index, compared with mainland China’s 26 per cent. It is therefore somewhat surprising that investors have barely reacted to the increase in political risk in Asia, especially in Taiwan, whose presidential and legislative elections are a potential flashpoint just when Beijing and Washington are trying to ease tensions.
While investors often spend more time worrying about political risk than is ultimately warranted, the outcome of Taiwan’s elections could have major implications for global markets. Putting aside the potential for a dramatic escalation of hostilities across the Taiwan Strait in response to a stronger-than-expected performance of the ruling Democratic Progressive Party, the virtual stranglehold of Taiwan Semiconductor Manufacturing Company (TSMC) on the global chip supply chain is reason enough for investors not to be complacent.
Taiwan produces 90 per cent of the world’s most advanced chips, and some US technology giants, commonly referred to as the “ Magnificent Seven”, rely heavily on Taiwan. Bank of America warned earlier this week that the Magnificent Seven’s 30 per cent weighting in the benchmark S&P 500 index made US stocks “more sensitive than ever to any geopolitical escalation that disrupts the supply of semiconductors”.
Yet mainland China also relies on Taiwan to furnish it with the chips needed to power its consumer electronics industry. Furthermore, TSMC itself has deftly straddled the geopolitical divide, with its share price up 30 per cent since the start of last year, just after Warren Buffett’s conglomerate sold the bulk of its stake in the company because of geopolitical risks.
Taiwan Semiconductor Manufacturing Company is the world’s largest contract chip maker and produces around 90 per cent of the world’s leading-edge semiconductors. Photo: Reuters
This partly explains why markets are calm. If anything, the geopolitical and economic centrality of Taiwan reduces the threat of a major conflict. Investors are even less concerned about the outcome of elections in India and Indonesia on the grounds that policy continuity will prevail.
Foreign inflows into the equity markets of Taiwan and India rose sharply in the last two months, buoyed by signals that the US Federal Reserve will start cutting interest rates this year. JPMorgan notes that historically, emerging Asia “has been closely aligned” with the Fed’s interest rate cutting cycles, “particularly at the turning points”.
However, it is the impact of US politics that will prove far more consequential. Overshadowing all other electoral contests this year is the US presidential election, not just in terms of the gravity of the threat the result poses to the country’s democracy and the liberal order but also the harm it could inflict on the transatlantic alliance, global security and the credibility and appeal of the US as a destination for investment.
Eurasia Group describes the election as “the United States versus itself”, adding that “the outcome will affect the fate of 8 billion people, and only 160 million Americans will have a say in it, with the winner to be decided by just tens of thousands of voters in a handful of swing states.”
The return of Donald Trump to the White House – a prospect that is frightening to contemplate but eminently plausible – would be the mother of all gifts to the US’ adversaries and detractors while eviscerating its security commitments to allies. Japan and South Korea might feel they have little choice but to acquire nuclear weapons. Efforts to tackle climate change would be dealt a crushing blow.
Geopolitical risk would be taken to a new and much more dangerous level while the creditworthiness of the world’s most important economy would suffer, with worrying repercussions in global markets. While much can and probably will happen between now and November, Trumpism poses as much of a threat as Trump himself, and perhaps more.
If there is any complacency about political risk, it is not in Asia but in the US where the stakes are incomparably higher, both for America and for the rest of the world.
