Political cycles represent a core issue for capital markets in developing and emerging countries. This paper analyses the intricate links between financial markets and emerging democracies and highlights changes in the ways analysts and investors react to political cycles in emerging markets.
Financial markets have, in the past, been particularly sensitive to political events. All the major financial crises in Latin America of the past decade and a half took place during an election year. Even in 2006, an unusually calm period in light of the number of presidential elections, markets remained highly sensitivity to elections: the day following Felipe Calderónʹs narrow victory in Julyʹs 2006 Mexican presidential elections, the stock market gained almost 5 per cent in a day, bond prices soared and the peso saw its biggest one‐day appreciation in six years.