Key Takeaways

  • There are numerous political elections around the world, but very few have an impact on the FX markets.
  • Recent elections in Taiwan and Italy had important geopolitical and financial market repercussions.
  • Results of upcoming elections in Israel, France and the US could be geopolitical and market game-changers.

There are political elections taking place all over the world, but very few actually matter to the currency markets. Here are five elections in 2020 that do matter (the first two have already taken place):


1. TAIWAN (Republic of China) – presidential and legislative elections were held on January 11.

Significance: The incumbent president, Tsai Ing-Wen of the Democratic Progressive Party (DPP), had campaigned against unification with China. Her election was seen as a sharp rebuke to China and its attempts to intimidate or entice Taiwan into China’s fold.1

Results: The election produced a landslide victory for Tsai over her opponent Han Kuo-yu of the Kuomintang party (KMT). Legislative elections saw the DPP maintaining its majority.

Explanation: Tsai’s tough stance on China was critical to helping her win a second term. In light of the ongoing crisis in Hong Kong, China was the pivotal issue in this election. Voters remembered Tsai’s opponent’s visit to Hong Kong back in March, and interpreted his softer stance on China as a crack in the armor of Taiwan independence.2 A longer-term perspective on the vote stems from Taiwan’s deep roots – nearly 100 years – of interest in democracy.3

Market reaction: On pre-vote Friday (January 10), the USD/TWD traded briefly just over 30/$, and on post-vote Monday (January 13), it gapped lower (stronger TWD), reaching a final bottom at 29.85. Since then, the currency pair has worked its way back up to 30.10,4 as China may “double down on the coercive policies it deployed during Tsai’s first term,” according to Richard Bush, former head of the American Institute in Taiwan.5

2. ITALY – a regional election in Emilia-Romagna was held on January 26.

Significance: The election was seen as a test of Italy’s national coalition government. Matteo Salvini, leader of the right-wing, anti-migrant League party, had campaigned extensively in the wealthy northern region of Emilia-Romagna. His hopes were ambitious: to unseat the center-left Democratic Party (PD) which has held power since WWII, to trigger a collapse of Italy’s government, to force a snap election, and to set the stage for his return to power.

Results: A huge turnout (67%) saw voters defeat Salvini’s efforts. They re-elected the PD’s Stefano Bonaccini (51.4%) and the League party candidate, Lucia Borgonzoni captured a large percentage of the remaining vote (43.6%).6

Explanation: Salvini’s campaign in the region gave birth to an explicitly anti-Salvini, anti-populism protest movement called the “Sardines” as public squares were packed with people like sardines in a can, supporting his opponents.7 For weeks prior to the election, the PD candidate was greeted with great enthusiasm, leading him to victory.

Market reaction: No reaction was seen in the currency markets, but enthusiastic investors quickly gobbled up Italy’s 5 and 10-year government bonds. Yields sank quickly by 17 bps to 0.42% and 20 basis points to 1.03%, respectively.8

3. ISRAEL – legislative elections for the Knesset (Israel’s national legislature, which elects the president) will be held on March 2.

Significance: Unable to form a coalition government after two elections, the deeply polarized country returns to the polls for the third time in less than a year. Israel has not had an official government budget during this time, triggering cutbacks that may weigh on economic growth. Depending on results of the election, it may be well into 2020 before a new budget is passed.

Expectations: Some observers think this election might finally be the end of Israeli Prime Minister Benjamin Netanyahu (of the center-right Likud party). He’s been indicted in three corruption cases and faces tough opposition from Benny Gantz of the Blue and White party (centrist + liberal party alliance), who has a slight lead in the polls.9 Oddsmakers still give Netanyahu a 55% chance of winning, as he has a history of rising from the political ashes and he has exceptional campaigning skills. At the same time, the odds are high that there will be another failed attempt to form a coalition government by whichever party wins, which would lead to another election in the fall.

Potential market reaction: Historically, geopolitics has little impact on the value of the shekel. Israeli’s strong economy, led by its tech sector, has consistently attracted flows of foreign capital, fueling strong demand for the shekel regardless of government issues.

4. FRANCE – municipal elections will begin on March 15 and end on March 22. The elections renew municipal councils of approximately 36,500 French communes (townships). The councils then choose the local mayor.

Significance: The elections will provide a good measure of the popularity of French President Emmanuel Macro, his budget and his economic, pension and immigration reforms. More broadly, they may clarify if the French embrace Europe’s view of Macron as the “savior for the centrists, the anti-Trump, the antidote to Brexit, the providential pro-European who would halt the slide to anti-Europeanism and anti-globalism.” 10

Expectations: Odds are increasing that worker/voter anger over Macron’s reforms will spill into the municipal elections (and possibly into the 2022 presidential election).11

Potential market reaction: These municipal elections may shed light on whether or not Macron can move forward with his reforms. If he cannot, the euro will suffer.

5. UNITED STATES – a presidential election to be held on November 3, 2020.

Significance: A possible change in the leadership of the free world – very significant indeed.

Expectations: Current odds favor President Trump’s re-election.12

Potential market reaction: Investors view Trump as pro-business, so a re-election would be bullish for financial markets and the US dollar.
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1 Lily Kuo, “Tsai Ing-Wen wins landslide in rebuke to China,” The Guardian, 1.22.2020

2 Jen Kirby, “Taiwanese President Tsai-wen, an opponent of China, has won reelection,” Vox, 1.12.2020

3Evan Dawley and Wayne Soon, “How Taiwan’s History Illuminates the 2020 Election,” The Diplomat, 1.24.2020

4, 8 Bloomberg, 1.27.20

5 Adrian Kennedy and Samson Ellis, “Taiwan’s Tightrope,” Washington Post, 1.9.2020

6 Miles Johnson, “Matteo Salvini thwarted in attempt to find way back to power in Italy,” Financial Times, 1.24.2020

7 Sylvia Poggioli, “Regional Elections in Italy: Can The ‘Sardines’ Win Against Populism,” NPR, 1.25.2020

9 Donna Edmunds, “Blue and White Leads on Likud by Four Seats, New Poll Finds,” Jerusalem Post, 1.10.2020

10 John Lichfield, “Macron was the great hope for centrists. Despite his struggles, the hope is not lost,” The Guardian, 1.5.2020

11 John Leicester, “For France’s Macron, 2020 again brings rocky start, outlook,” AP News, 1.1.2020

12 Sigal Samuel, Kelsey Piper, “19 big predictions about 2020, from Trump’s reelection to Brexit,” Vox, 1.13.2020

Scott Petruska, CFA
Written by
Scott Petruska, CFA
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