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    The year of the election just delivered its first big stock-market shocks

    By George Glover,

    • Indian stocks plummeted this week after Narendra Modi won fewer seats than expected.
    • Left-wing Claudia Sheinbaum's crushing victory in Mexico also spooked investors.
    • It's a reminder that elections could fuel volatility in equity markets this year, analysts say.

    It's the year of elections around the world — and 2024 served up its first major stock-market surprises this week, as the results of votes in Asia and the Americas spooked investors.

    Indian prime minister Narendra Modi's narrow victory sent Mumbai-listed stocks plummeting, while Mexican equities slumped in the wake of Claudia Sheinbaum's crushing victory.

    2024 is set to be the biggest election year ever, with more than half the world's population set to go to the polls in 50 countries — including the looming rematch between Joe Biden and Donald Trump.

    Analysts say that the surprise results in India and Mexico are a reminder of the potential market volatility to come.

    Modi's narrow win sparks a sell-off

    Modi will remain prime minister after his Bharatiya Janata Party and allies secured a majority in India's lower house of parliament — but his slimmer-than-expected margin of victory disappointed investors.

    India's flagship Nifty 50 index had its worst day since the start of the pandemic, tumbling nearly 6%, while the rupee slipped against the US dollar and 10-year government bond yields edged up. The stock market erased those losses later in the week to close higher on Friday, however.

    Modi's social policies, often aligned with right-wing Hindu nationalism, have proved controversial during his decade-long tenure as prime minister.

    But his economic approach has boosted India's economy, drawn in huge amounts of foreign investment, and won the approval of big Wall Street names such as Jamie Dimon, Elon Musk, and Tim Cook.

    Analysts said that the sharp sell-off in stocks and the rupee reflected investors' concerns that Modi's narrower-than-expected majority will make it much tougher to pass his pro-growth, pro-business reforms.

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    Russ Mould of UK-based broker AJ Bell wrote in a research note: "The fear will be that if he has to rely on alliances with smaller parties, any market-friendly policies will be diluted."

    Sheinbaum's landslide triggers Wall Street freak-out

    Half the world away, Mexico's Claudia Sheinbaum is celebrating a much more resounding victory.

    The leader of the left-wing Morena party won more than 60% of the votes in Sunday's general election, meaning she's set to become the country's first female president. However, her triumph triggered a stock-market slump.

    According to Reuters data, Mexico's main stock-market index dropped 6% on Monday as investors reacted to Sheinbaum's win, while the peso tumbled 4% against the dollar.

    Meanwhile, Morgan Stanley cut its rating on Mexican equities, with strategists saying that the "unprecedented" scale of Sheinbaum's win had put the bank in "wait-and-see mode."

    Sheinbaum has promised to press ahead with government spending projects despite worries about Mexico's high fiscal deficit, which the World Bank expects to hit 5.4% of GDP by the end of 2024.

    "We saw a big drop in the Mexican stock market," Kathleen Brooks, research director at XTB UK, told Business Insider. "There's fear now — because Sheinbaum did win a supermajority that means she could meddle with the economy, and that's really freaking out investors."

    All eyes on November

    The European Parliament is holding elections this week, while the UK will go to the polls in early July. And in November, Biden and presumptive Republican nominee Trump are set to face off in a contest that oddsmakers are pricing as a coin toss.

    Investing gurus have long flagged the US election as a potential source of uncertainty — and the dramatic stock price swings in India and Mexico should be a reminder that there's more volatility to come, according to analysts.

    "It's often said that markets don't like uncertainty and with around half of the world's population going to the polls this year the only sure bet is that, in the short term, uncertainty is here to stay," said Danni Hewson of AJ Bell.

    "Watching the market reaction to India's election, which didn't quite deliver the result most people had been expecting, provides an insight into the volatility that could be in store as election fever migrates to the UK and then across the Atlantic to the US."

    This week's results were a warning, XTB's Brooks told BI. "It's just generated so much volatility … it's a reminder of all the election risk coming up in the second half of this year."

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