Transcript
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Speaker: Welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: I'm Fred Neumann, Head of Asian Economics Research here at HSBC.
Speaker: And I'm Harold van der Linde, Head of Asian Equity Strategy, also at HSBC.
Speaker: There's only one month left for 2023, so it's really time to start thinking about what's in store for next year.
Speaker: And today we want to focus on one particular issue that's very dominant in 2024, and those are the elections across the region.
Speaker: That's right, and there's no shortage of them.
Speaker: No less than five Asian economies will be heading to the polls in 2024 with big implications for markets and macro policy across the region.
Speaker: We've got a lot of ground to cover in a short time, so let's get the conversation started right here under the Banyan tree.
Speaker: Let's start with a quick timeline of Asian elections in 2024.
Speaker: First up is Bangladesh with a general election on January 7th.
Speaker: Soon after that, Taiwan heads to the polls for a leadership vote on January 13th.
Speaker: Indonesians will be voting for their next leader a month later on February 14.
Speaker: Then it's over to Korea for assembly elections on the 10th of April.
Speaker: Last but certainly not least, the world's largest democracy, India, will hold a general election in April or May.
Speaker: So Fred, a lot is going on for leadership across the region in 2024.
Speaker: Which election are you going to be focusing on in particular?
Speaker: Well, big elections all around, but I think the two ones that really the focus is on is India, and then, of course, Indonesia.
Speaker: And in India, I would say it's, first of all, a massive logistical feat to get 1.4 billion people to vote.
Speaker: Not everybody votes, but hundreds of millions of people to vote.
Speaker: It's now done electronically, by the way, no longer paper ballots.
Speaker: So India is, in some sense, more advanced than some advanced economies when it comes to election technology.
Speaker: But there's certainly the question is, will some of the economic reforms continue that we've seen?
Speaker: Will maybe after elections do we see another push for reforms?
Speaker: Because very often what happens is, in these economies, is that the reforms, the former momentum slows down in the run-up to the election and then afterwards you get a new impetus.
Speaker: And that's going to be one of the key issues for India, I believe.
Speaker: But Harold, you're a keen watch of Indonesia.
Speaker: What are you watching there?
Speaker: Well, the story there is that the existing president, President Joko Widodo, will not continue.
Speaker: He's had two terms.
Speaker: So there are now three new contenders, really two that are in the lead.
Speaker: And the polls show that it's really close.
Speaker: The economic policies don't differ too much.
Speaker: It's really a sort of differences in personality that people probably are going to vote for in Indonesia.
Speaker: And I think they have the biggest one-day election.
Speaker: There's a massive logistic operation as well.
Speaker: But the presidential election is probably going to be in two stages.
Speaker: And then I think somewhere when we get a feeling of who that's going to be, who's going to win, or we have the outcome of the election, then it's about, yeah, what sort of decision maker is he going to be?
Speaker: What sort of people is he going to surround himself with?
Speaker: And of course, we should mention that the first round is on February 14th, Valentine's Day in Indonesia.
Speaker: But then, of course, that's not the end of it, because we could have a runoff.
Speaker: And in Indonesia, the elections are the, unless you get more than 50% of the vote for the presidential election, there could be a runoff between the top two contenders.
Speaker: And that's probably much later in the year.
Speaker: So we're in for a long, long period of campaigning and electioneering in Indonesia.
Speaker: Korea is another big one, but it's a presidential system.
Speaker: We don't have presidential elections, but we have national assembly elections.
Speaker: Are you watching that from an equity perspective?
Speaker: I'm looking for that as well, but in Korea, it's really big tech companies that dominate the equity market there.
Speaker: So what is important to big tech companies is what happens with global growth and what happens in the inventory cycle in tech products and these sort of things.
Speaker: The presidential elections are important because very often it's all about the position of these larger tech groups within Korea and their role within Korea that's being discussed as well.
Speaker: But in general, how do you look at those elections?
Speaker: Well, the elections probably matter a bit more from the macro side than from the equity market perspective, because it's a presidential system, as you say.
Speaker: the president really determines often the economic policies that come out.
Speaker: But what matters here now, next year, is really the opposition controls parliament at the moment.
Speaker: And if the elections kind of mean that parliament will be controlled by the same party as the president, then that could have implications for fiscal policy going forward.
Speaker: And that matters for the bond market.
Speaker: It matters for the exchange rate, for example.
Speaker: And so that's why
Speaker: In the macro sense, investors are still watching the Korean assembly elections.
Speaker: Yeah, that's how it also impacts the equity markets and kind of indirectly.
Speaker: Indirectly, it does.
Speaker: Yeah, yeah, yeah.
Speaker: But it's not sort of the key focus as a presidential election would be.
Speaker: The other one is, of course, Taiwan.
Speaker: They have elections as well.
Speaker: You're looking at those?
Speaker: That's coming up in January.
Speaker: That's going to be, in fact, one of the first elections in the cycle of the coming year.
Speaker: And that's we have a presidential election there.
Speaker: It's a presidential system more or less as well.
Speaker: And there has been already a bit of chatter because the opposition might feel the joint candidate or not.
Speaker: And so the focus among investors has been whether that comes in.
Speaker: comes to pass.
Speaker: It looks at the time of recording at least that the opposition couldn't agree on a joint president, but that might change.
Speaker: And if that changes, then it could really affect the outcome of the race.
Speaker: Probably when it comes to domestic economic policy, not a huge change.
Speaker: There's certainly a lot on the agenda in terms of the movement towards green energy in Taiwan, those kind of issues.
Speaker: But
Speaker: More broadly is, of course, going to be more the implications for international politics that would matter.
Speaker: But that's certainly something that investors watch from that angle.
Speaker: And then we have, of course, Bangladesh.
Speaker: I don't know how closely you look at that, Harold.
Speaker: We look at Bangladesh and the Bangladesh equity market.
Speaker: So we'll have to see there's a big runoff as well in the beginning of the year.
Speaker: And that will also determine kind of fiscal policies and all sorts of other policies that play a role there.
Speaker: And in Bangladesh, the story is really that FDI is coming in, foreign direct investments are coming in.
Speaker: But for that, they need to invest in power infrastructure and just general hard infrastructure, roads and bridges and these sort of things.
Speaker: So we need to see that continue to go.
Speaker: But just taking a step back here.
Speaker: So we have all these elections across the region.
Speaker: How do you generally approach elections?
Speaker: Is that something you think is a risk factor or what are the implications you generally look at?
Speaker: Well, it's certainly something that investors pay keen attention to.
Speaker: I think in emerging markets, generally, politics matter quite a bit.
Speaker: And so that's certainly something we watch and investors frequently ask us about.
Speaker: But I think one interesting observation is that in Asia, politics tends to align less along ideological battlegrounds relative to other parts of the world.
Speaker: So an election would not be about
Speaker: Do we take free market policies or interventionist policies and so that these ideological debates are less prevalent in Asia because societies are not really aligned along those... No, for example, it's very different in, for example, South America, right?
Speaker: Very much.
Speaker: In fact, we just had the Argentinian election, which is about fundamental economic policy going forward, macro policy, whereas here it's about...
Speaker: You know, micro policies, how much incentives do we get foreign direct investors, how much do we do in terms of... To build up a healthcare system.
Speaker: Healthcare system.
Speaker: So it's the allocation of the resources and there's really even bigger questions.
Speaker: That's right.
Speaker: And then it becomes in Asia probably more about the personalities, the leadership and the ability to deliver implementation.
Speaker: which is much more prevalent.
Speaker: And that also means that really in Asia we've seen less erratic macro policies over time.
Speaker: We've seen less dramatic changes in fiscal policy over the political cycle than compared to other countries.
Speaker: It also means, for example, on the equity side, people very often debate the economic policies that come out of it.
Speaker: more attention in general should be paid to what style of leadership these people have.
Speaker: It's the personalities that people pick for, right?
Speaker: So you have, is this an autocratic leader or is it a more inclusive leader that says, I'd like to have all sorts of specialists in my cabinet that give me expert advice on these issues.
Speaker: And we see in some of these countries very different approaches to that.
Speaker: And I think more attention should be paid to that than just looking at the economic policy agendas that these people have.
Speaker: But at the very least, it's going to keep us on our toes again in 2024, Harold.
Speaker: I thought 2023 was already a busy year, but it looks like there's no letting up, at least with the elections coming through in Asia.
Speaker: No, there's going to be a lot of that.
Speaker: A lot of that and a lot of movements and markets.
Speaker: And you've got to keep on your toes when it comes to Asian markets, I think, in general.
Speaker: But, of course, in a year with the momentous political elections and events, even more so.
Speaker: That's absolutely right.
Speaker: Well, Harold, speaking of elections, when is the last time you voted?
Speaker: I've voted here in Hong Kong in the past, but actually I have a Dutch passport.
Speaker: The interesting thing in the Netherlands is that the threshold to set up a party is very low.
Speaker: So prior to the elections, you have all sorts of parties coming up.
Speaker: We have an already successful party for animals for quite some time.
Speaker: I saw there is a party that just advocates more sports for everybody in the country.
Speaker: There's a party for farmers that has been very popular but seems to diminish in the polls a bit.
Speaker: So all sorts of new parties are coming up there.
Speaker: Very often a lot of them of course are not big enough to really make it into parliament and they are very short-lived.
Speaker: So how does it work then if we have elections and then the party for animal lovers has a majority and the party for sports has the second largest?
Speaker: Would they form a coalition then?
Speaker: In Holland none of the parties has a majority.
Speaker: So you always need to build coalitions.
Speaker: That's I guess the whole idea of having low thresholds so that you don't have one winner-takes-all sort of system.
Speaker: But the bigger issue actually is for me, Fred, is I haven't lived in the Netherlands for over 30 years.
Speaker: I lived there when I was about 20 years old or so.
Speaker: I have a right to vote in that country carrying its passport, but not being participant in the Netherlands and living here in Hong Kong, I wonder if I actually should vote in these elections.
Speaker: Is that a country I should contribute to or should I leave it up to the people that really live there?
Speaker: And on that note, it's goodbye from the two of us.
Speaker: Many thanks, as always, for joining us under the Banyan Tree.
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