Impact of Elections on Your Portfolio
An election year throws up a series of questions on the outcome, approach, and tactics of political parties as they race to the finish line. Uncertainty looms large around these questions. Investors lose their appetite for risk when they are forced to face an ambiguous future. So, the market tends to adopt a conservative and sometimes pessimistic stance before the elections.
Statistically speaking, returns in an election year may be higher than average simply because of the sentiment that prevailed in the pre-election period. Selecting themes in such a market environment can be challenging but not impossible. For instance, given the populist policies of the incumbent government, the consumption theme could be an effective bet.
Post-election we could see policies aimed at fighting inflation which could result in the tightening of the economy due to the pre-election populist measures of the incumbent government. In such a situation, a play on commodities and financials may work well.
Overall, we can see higher volatility in short and medium term and lower volatility in the long term. It is important to spend time being invested and tide through this volatility.