2019 Elections - Part 5. Greece: New Democracy Promises Magic Makeover

793 Views09 Feb 2019 17:09

SUMMARY

The incumbent, a battle-hardened Alexis Tsipras, vows to lead a revived and renewed government, unshackled by the Troika. Though promising electoral giveaways, in reality, Syriza has limited scope for populist adventures and the clock is ticking. In fact, under the capable tutelage of finance minister, Euclid Tsakalotos, as well as the urgings of the Troika, Greece has run a tight ship. They are unlikely to be rewarded for their efforts. The recent no-confidence vote, triggered by the Macedonia Prespa agreement, has had a bruising impact on Syriza, costing them some precious Nationalist/nativistic votes at home while boosting Tsipras’s credentials, in some external circles, as an international statesman. The deal enhances security in the Balkans, will accelerate planned projects for energy and transport networks, and will upgrade Greece’s geo-political status. Will Tsipras win a Nobel Prize and lose the election? The unlikely reelection of Syriza with support from a smaller party -as in 2015- would be seen at best as a market neutral event. If New Democracy were to “win”, and they are extending their lead in the polls, with or without support of a smaller party, markets will rally as Syriza is identified as a less-friendly market force and some of their more ideological policies have irritated swathes of the population. New Democracy may represent, according to some commentators, a much-needed change of scene, reviving a suppressed enterprise culture, raising “animal spirits”, and aggressively tackling the Banking Sector imbroglio and accelerating privatisation. We do not though believe, that either Syriza (signed-up to privatisation as well) or New Democracy would alter the economic landscape much. They may both need another party as in 2015 to reach a majority. A coalition government led by the left or right would have a limited impact, reducing ideological content of respective parties. Whoever is elected has to follow a fairly prescriptive agenda within a pro-EU framework given Greece’s modest scope for expansionary fiscal policy amidst creditor demands and requirements. Is Greece in fact Europe’s first post-populist narrative? That will be for New Democracy to prove.

This insight is Part 5 of a six-part series on 2019 elections in which we evaluate key polls and their potential to re-shape the economic outlook and investment risk profiles. These six markets - Thailand, Indonesia, India, South Africa, Greece and Argentina - collectively represent one-quarter of the world’s population and more than $5 trillion in GDP. We review distinct domestic challenges as well as campaign pledges by incumbents (and their challengers) aimed at addressing them. We also humbly assign probabilities to baseline and alternative scenarios and their implications for macroeconomic outlook and investments.

Even amidst their diversity, these six jurisdictions display some remarkable similarities: subdued economic momentum, bouts of market volatility, signs of voter disquiet and/or disillusionment and an opposition looking to capitalize on all of these forces. In a bid to revive the ‘magic’ that had helped to install their administrations, many incumbent governments are now on the defence - either changing tack (and dialing back past policies) or attempting to convince voters to let their policies work their magic.

Summary - Election timeline, political risk classification and market implications:

	Election date (2019)	Degree of uncertainty	Baseline scenario (%)	Market implications	Market view
Thailand	24 March	Medium to High	Elections are held and pro-junta PP keeps control (65%)	Medium to Low	THB: Stable unless political uncertainty erodes confidence, tourism ThaiGB: Stable CDS: Gradually wider SET: Energy, materials and capital goods favoured. More upside in non-bank financials vs financials.
Indonesia	17 April	Low	Jokowi re-elected, PDIP coalition intact (75%)	Medium	IDR/IndoGB: Constructive INDON: Stable JCI: prefer energy, materials, services, capital goods, transportation,and telco.Cautious on main banks.
India	April to May	High	BJP/NDA retain power, with smaller majority (60%)	High	INR/IGB: Steeper curve (bearish long-end) CDS: Wider on potential negative sovereign outlook Nifty: Cautious healthcare and banks. Overweight IT.
South Africa	7-31 May	Medium to High	ANC retains power (80%)	High	ZAR/SAGB: Constructive SOAF: Constructive JSE Top40: Constructive on Financials. Cautious on consumer.
Greece	20 October	Medium to High	ND returns to power (52%)	Medium to High	GGBs/CDS: Scope to tighten vs periphery peers AEX: Banks may revive though European credit markets need to be watched. Energy, Infra, and utilities offer opportunity. Gaming too.
Argentina	27 October	High	Cambiemos retains power (52%)	High	ARS/Argtes: Peso richly valued but slower inflation positive for Argtes ARGENT: Volatile Merval: Volatile. Optically cheap valuations signify risk and weak growth. Hydrocarbons could be a winner. Cautious on consumer.

Source: Authors' assessment

Historical 5yr CDS (Argentina and Greece = LHS, all others RHS):

Historical Equity Indices (rebased where 1 Jan-2018 = 100):

Please refer to other insights in this series:

Elections 2019 - Part 1. Thailand: Magic Moment for Democracy’s Return?
Elections 2019 - Part 2. Indonesia: Jokowi’s Policies - Magic Bullet or Bitter Pill?
Elections 2019 - Part 3. India: Modi’s Magic Touch Fades as Populism Makes a Comeback
Elections 2019 - Part 4. South Africa: Ramaphosa - ANC’s Magician?
Elections 2019 - Part 5. Greece: New Democracy Promises Magic Makeover
Elections 2019 - Part 6. Argentina: Macri Magic and the Peronist Spell

This series is co-authored by Paul Hollingworth at Creative Portfolios and Virgil Fernandez Esguerra.

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