Global Election Year: Leveraging IR to Navigate the Uncertainty

2024 will see more than 50 national elections throughout the world. Starting with Taiwan in January and running through the US presidential election in November, it’s a busy lineup even in calmer political times- representing more than 40% of the world’s population and an outsized chunk of global GDP. The potential for market volatility is undeniable, Investor Relations teams and senior management beware: this is not the year to put your communications on autopilot.

Casting votes in this multinational, multiparty democratic World Cup are some of the most powerful and wealthy states (the US, India, the UK), some of the weakest (South Sudan), and the most stressed (Taiwan, Ukraine). Some elections will be open, free and fair. Many less so. Some will not be free at all. More than 400 million voters across 27 member countries will also be voting to elect new European Parliament representatives who, in turn, will be tasked with shaping critical global standards such as the digital economy, decarbonization, and artificial intelligence- with influence transcending Eurozone boundaries. The impact of their decisions therefore resonates throughout global capital markets.

InspIR’s blog this month offers insights into capital markets trends for the remainder of the year, including strategies to effectively prepare for and navigate related challenges.

 

Reflecting on the past: Can history predict the future?

Presidential elections always add an extra element of uncertainty for the financial community, and after a halcyon 2023 in equity markets, these could come as a shock to investors. On top of assessing the path of the Federal Reserve, the stability of profits and the consumer, and navigating economic resilience vs. recession, investors and analysts have to grapple with the barrage of headlines about the 2024 election. Yet, looking at the past- the US, for example- we see many instances of investor concern over potential election outcomes. In 2016, concerns related to a Trump presidency loomed large while, in 2020, the market was forced to contend with a contested election- and plenty of related drama. However, the stock market’s response defied conventional expectations: markets tend to be more volatile in the lead-up to the election, but after election day that source of uncertainty is cleared, and, regardless of the result, markets move on and refocus on the fundamentals.

The S&P 500 saw a slight uptick after Trump’s election victory, the overall markets closed 1.1% higher after that day’s regular trading session when the results were finalized and, as noted, markets rallied strongly after the 2020 election.  2020 then brought an even more unexpected turn of events: despite the backdrop of a contentious election, the S&P 500 surged by 9.1% in November, confounding many analysts’ predictions.

In 2018, the United Kingdom’s stock markets achieved unprecedented highs, a mere two years following the Brexit referendum. Similarly, many global stock markets are currently either at or near record levels, a mere two years after the onset of the Russian-Ukrainian conflict.

Data-driven analysis suggests that, while the markets’ overarching performance holds significance and often demonstrates resilience in the aftermath of elections, the undeniable truth remains: new candidates’ and parliamentarians’ actions and policies wield substantial influence over businesses, often transcending national borders and impacting global affairs.

 

Playbook for IROs in an Election Year

The financial community will always want to know how a company will be affected under different configurations of government or different mandates of a presidency. How will the company fare under a Republican sweep or Democrat sweep? What if one Republican in particular wins the White House but loses both chambers of Congress, also the potential legislative impact on the company? How should they model different scenarios in the first year of a presidency?

Investor Relations Officers (IROs) face a multifaceted challenge during an electoral year, navigating potential impacts of political outcomes on their organizations, strategies and stakeholders. IROs should therefore move quickly to adopt a proactive and strategic approach to communicating these challenges and potential outcomes. This sends a message of preparedness and transparency.

IROs should start by conducting in-depth analysis to identify the candidates’ or parties’ potential policy changes that could directly affect your industry in general and company specifically. By understanding the specific policies at play, IROs can assess the potential implications on operations, financial performance, and market positioning. This analysis forms the foundation for proactive planning and strategic decision-making in response to electoral outcomes.

Scenario planning is another critical aspect of preparing for electoral uncertainties. IROs should develop robust scenario plans that model various electoral outcomes and their corresponding impacts on the business environment. By considering best-case, worst-case, and ‘most likely’ scenarios, IROs can develop strategic responses to mitigate risks and capitalize on opportunities arising from their respective potential outcome. Or underscore the certainties and drivers regardless of election outcome.

Effective risk management strategies are essential for safeguarding against market volatility, regulatory changes, and geopolitical uncertainties triggered by electoral events, including assessing your company’s international exposure and identifying potential risks or opportunities arising from electoral outcomes in foreign markets.

Further, these need to be communicated to the financial community- underscoring the team’s thorough due diligence and enabling the market to consider the opportunities and challenges relative to a given scenario.

An environment of political uncertainties is therefore yet another opportunity for investors to identify the investment names with strong fundamentals, a resilient investment thesis and outstanding communications. The core element of any good IR program is the ability to communicate your company’s differentiated financial resilience, operational performance, and strategic direction. Transparent and consistent communications convey adaptability and engenders investment community trust.

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