Politics to have outsized impact on emerging markets – BNY Mellon

A key investment theme of 2014 is expected to be politics, as elections could affect policies in several emerging markets, according to the BNY Mellon Global Market Outlook.

“While our investment boutiques have their distinct views on markets and investing, a common theme from many is that potential opportunities lie amid the political uncertainty likely to characterize 2014,” said Curtis Arledge, chief executive officer of BNY Mellon Investment Management. “In addition to questions about Fed policy in 2014 and its impact around the world, elections in some key emerging countries could have important market implications.”

Among the countries facing elections in 2014 are Turkey, Brazil, India and South Africa. “Brazil stands out as the country that has a sizeable civil service and bureaucratic regulatory system, so a change of leadership could affect a number of sectors and the way Brazil does business,” said Sophia Whitbread, investment manager and a member of the emerging markets team at Newton, BNY Mellon’s London-based thematic investment boutique. “However, the incumbent is leading in the polls and there might not be any changes.”

Looking at Asia, Whitbread added, “Political unrest to varying degrees has always been a feature of Asian markets and one factor investors should consider.”

Colm McDonagh, fixed income manager at Insight Investment, the London-based BNY Mellon boutique specializing in liability-driven investment and multi-asset strategies, also focused on the upcoming elections. “Typically, before elections people spend more money, which can lead to inflation and other negative side effects.”

Looking at Brazil, McDonagh said, “Its middle class had been rising, but now has become squeezed. Not enough has been done to improve infrastructure such as public transportation, which can be a catalyst for protests.”

In addition to prospects for emerging markets, the Global Market Outlook focuses on a range of additional topics including the potential impact of the policies from the U.S. Federal Reserve on the U.S. and other economies and the outlook for various asset classes.

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