Emerging markets (MME=F) are in the spotlight as they brace for their steepest decline in seven weeks as several national elections unfold globally. Pictet Asset Management Chief Economist Patrick Zweifel joins the Morning Brief to share his outlook on this development.

Zweifel notes that markets tend to "focus less on the immediate implications of the elections and more on the underlying fundamentals," assessing how election outcomes will shape the broader economic landscape. Turning to India, where markets lost $386 billion in value following the national election results, Zweifel deems this reaction as "overdone" for three key reasons: first, "game-changing policies" were implemented under previous government coalitions; second, India's "very federal structure" mitigates the impact of a single election; and third, Prime Minister Modi has "been personally committed" to fiscal gains.

On the global inflation front, Zweifel explains, "I think we do have a much bigger force at work, which is the globalization of services taking place."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Angel Smith

Video Transcript

Now emerging markets struggling as the S MC i emerging market index is on track for its steepest fall in seven weeks off of all of this news to break it down, we have Patrick's wife.

He is the chief economist at Pick A Asset management.

Thank you so much for being here with us, Patrick.

Now, I'm curious.

Over half of the world's global leaders are up for re election this year, so this is only an issue that's going to continue to be on top of investors' minds.

How much volatility should folks be pricing in because of these elections?

Yes.

So first, thank you for having me.

And, uh, you're absolutely right in pointing those two major elections in, uh in the space and what's so our global view would generally be that, uh, well, we we focus less on the immediate implications of the elections and more on the fundamentals.

And what could be the impact of those elections on precisely the fundamentals that, in our view, remain strong in both countries?

That you that you mentioned if we just take well, the Indian example for, for example, we We do think that while the immediate reaction is overdone because while there are various conditions that people and for foreign investors tend to underestimate in India, uh, one of the first one of the first element is that world Maine, you know, main game changing policies that had been implemented in India in the early nineties were done under a government coalition.

Story continues

And the second one is that India is well, is a very federal structure and with most decisions taken at the state level, um and, um, and the the the third, the third one being that well, Modi has been personally committed to fiscal edition, which is key in India.

So we don't think that policy priorities have changed much and we remain very structurally positive on the Indian markets to talk about India.

It's excellent inside, Patrick.

And when we think about the global elections, is there any one election that jumps out where there could be a massive pivot or continuation in some cases of de globalisation that could then provide even more inflationary pressure?

Right.

Um, well, on on that, you know, on on on that, on that aspect, I do think that, um, well, regarding the globalisation itself, I think it's essentially happening, uh, on goods as we know so with, uh, with the risk of having more import tariffs and trade wars globally.

So that has this is happening.

But at the same time, I think we do have a much bigger force at work, which is the globalisation of services that's taken place with more and more, you know, jobs, service jobs, being tele, migrated and taking place in the sphere.

So if you if you just compare so the risk of having higher inflation due to a higher price of goods versus the decline in the price of services that start to be internationally traded, our view would be that well, it it's you could even think about potential disinflation globally, thanks to that increased competition on the service side.