- Indian markets bounce back after initial poll results shock
- Question marks over South African government make-up and Mexican policies
This year will see more voters head to the polls than any other in history. Even before the blockbuster US election, investors have seen an impact. Upsets in South Africa and uncertainty in Mexico have hit currency and equity markets. While the same parties will remain in charge in all three countries, new coalitions will be formed in South Africa and India. The latter result was a serious surprise, with prime minister Narendra Modi and his Bharatiya Janata party (BJP) expected to dominate the parliamentary vote. But as the world’s most populous country's results filtered in on Monday and Tuesday of this week, top Indian indices and India-focused funds listed in London sank.
This was because the hardline BJP won 240 out of 543 seats in India’s assembly, well down on the 400 predicted in initial exit polls.
The country’s top index, the Nifty 50, largely gave up the gains made in the past five months off the back of expectations of an increased Modi majority in parliament. Funds with an India focus saw a similar drop: Abrdn New India (ANII) fell 7 per cent, India Capital Growth Fund (IGC) fell 5 per cent, while Ashoka India Equity (AIE) fell 4 per cent.
But as the reality sank in that a Modi government would be returned, with the help of 53 seats from another party, investors came back as well. The UK-listed funds have largely made back early-week losses and the Nifty 50 is back to where it was.
The real outcomes of two other important elections are yet to be determined. In Mexico, there is a clear winner, in Claudia Sheinbaum, but just how closely she will stick to the policies of predecessor Andrés Manuel López Obrador (known as AMLO) is unclear. He banned new open-pit mines, hitting operators like Fresnillo (FRES), the silver miner, and she indicated during the campaign she would retain the measure.
“The country’s security situation and rising fiscal deficit, coupled with the strengthening of the Mexican peso, will represent critical challenges for her presidency,” said BMO Capital Markets analyst Colin Hamilton. “From a mining sector perspective it is unclear whether this will mean any lifting of restrictions, such as the de facto ban on new open pit mines, though we would see this as only a possibility rather than a probability in the near term.”
AMLO also took possession of several mines already in development, including the Sonora project previously held by UK company Bacanora Lithium. Investors dodged a bullet after Ganfeng Lithium bought out Bacanora in 2021.
The outcome of the election in South Africa is still up in the air. A significant slide in support for the African National Congress (ANC) means change could be on the way in the country. Out of 400 seats in the National Assembly, the ANC won 159, the Democratic Alliance (DA) 87 and former president Jacob Zuma’s new party took 58. A coalition is possible between the ANC and the DA, although only because the conservative DA wants to keep Zuma and fellow firebrand Julius Malema, leader of the Economic Freedom Fighters party, out of office.
The importance of South African government policies is underlined by the focus on Anglo American’s (AAL) assets in the country during BHP’s (BHP) takeover play in recent weeks.
Mining minister Gwede Mantashe came out against BHP’s proposal that Anglo American offload its majority stakes in Johannesburg-listed Kumba Iron Ore and Anglo American Platinum. The state’s Public Investment Corporation, a shareholder of both companies, also fought the buyout.
Another upcoming election could still help or hinder Anglo’s own break-up plans. The Botswana government owns 15 per cent of De Beers and a long-delayed revenue sharing agreement is yet to be finalised, almost a year after Anglo and the government published terms of a new deal. “The Botswana agreement is an extremely, extremely valuable outcome for both De Beers and the Government of the Republic of Botswana,” said Anglo American chief executive Duncan Wanblad last month. “We are very close to finalising the last elements of it.” He said the relationship with the government of Botswana is “an absolute key component to the success of that business”.
Opposition leader Dithapelo Keorapetse is quoted in local media as saying Botswana should push for a higher share of local diamond sales, or even to bring about a local downstream industry by a change in the agreement. A coalition of opposition parties will face current president Mokgweetsi Masisi in a vote before October.
Anglo American has already said it will sell or spin off De Beers as part of its own restructuring efforts, and Wanblad said the agreement with Botswana would stand even with an IPO or sale.
