Emerging-Market Elections Grab Traders’ Attention

  • Traders react to elections in South Africa, India, Chile
  • Rand breaks through 13 per dollar, Indian stocks rebound
Bloomberg’s Chris Anstey reports on how the election of Sebastian Pinera in Chile will impact currencies.

Move over bitcoin and Brexit. Emerging markets are grabbing some of the limelight.

In a surprising start to the last full week before the Christmas break, traders found themselves reacting to a flurry of elections from South Africa to India and Chile, pushing aside the more predictable fare of recent months.

“Politicians are under pressure to change and they are getting a reaction not just from the local electorate, but from markets,” Simon Quijano-Evans, an emerging-market strategist at Legal & General Investment Management Ltd. in London, said by telephone. “It will be pressure from both those angles that will force change.”

South Africa had the most eye-catching moves, as the rand strengthened below 13 per dollar for the first time in three months, amid growing optimism that Cyril Ramaphosa, the investor favorite, will be elected the next leader of the ruling African National Congress.

The currency advanced 1 percent as of 12:22 p.m. in Johannesburg, and may gain another 8 percent if Ramaphosa is confirmed as winner, according to Sean Ashton, the chief investment officer at Anchor Capital in Johannesburg. Stocks on South Africa’s FTSE/JSE Africa All Share Index rose and yields on 10-year rand-denominated bonds fell by the most since March.

Vote counting was under way as of 11:40 a.m. local time.

India produced a roller-coaster. Stocks tumbled in early trading before rebounding as initial results from an election in Gujarat, Prime Minister Narendra Modi’s home state, suggested his ruling party will win more seats than early trends indicated. The provincial election is considered a bellwether for the 2019 national vote. The rupee trimmed a decline of as much as 1 percent.

Voting Counts

The excitement in Chile started from the get-go after billionaire Sebastian Pinera clinched victory late Sunday in what had been a knife-edge presidential election run-off. The peso jumped the most since June 2016 on a closing basis Monday, heading for the longest winning streak in two months.

Pinera’s pro-business agenda helped push the benchmark IPSA Index of stocks to a record high earlier this year. It tumbled as much as 6.2 percent Nov. 20, the biggest intraday loss since 2011, after he secured fewer votes than forecast in thew first round of voting and the main opposition left-wing alliance surged in polls.

With the peso breaking through the 630-per-dollar mark on Monday, Quijano-Evans sees no reason why it shouldn’t strengthen to 620 in the short term on the back of Pinera’s win.

“Very few emerging markets have a tradition of democratic institutions strong enough to resist the short-term dictates of populists, nationalists and ideologues, and are able ensure continuity and consistency of government and economic policy,” said Julian Rimmer, an emerging-markets trader at Investec Bank Plc in London. “It is improbable economics will trump politics in 2018, but it would be nice if they informed them at least.”

— With assistance by Dana El Baltaji, and Selcuk Gokoluk

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