From Japanese general election to US midterm elections: global political variables become new test for markets.

From Japan to Brazil, this year's elections may add more uncertainty to the markets, which are already turbulent due to the volatility of US policies and escalating geopolitical tensions. Japan will hold elections this weekend (February 8), the most unpredictable in recent years, while votes across Latin America will test the region's trend towards right-wing shifts. The following are some of the most significant elections affecting the markets this year: Japan Japan will hold early elections on February 8, which may prompt the country, which has the heaviest debt-to-GDP ratio in the developed world, to relax its fiscal austerity policies. Prime Minister Shinzo Abe hopes to leverage her high personal popularity to garner support for her expansionary fiscal policy and strengthen her ruling coalition's position in parliament. However, the latest polls show a slight decline in her support. Investors expect Japanese bonds to continue to be under pressure, with some analysts predicting that the yield on 10-year government bonds will rise from the current slightly above 2% to 3% this year. Colombia Colombians will cast up to three votes starting in March to elect new legislators and a new president to replace Gustavo Petro, a left-wing figure who clashed with former US President Trump. The Colombian stock market outperformed its regional peers last year, but bond investors hope that the right-wing shift sweeping across Latin America will reach Colombia and restore orthodox economic policies. "If there is a shift to the right... there is a possibility of some fiscal adjustment," said Nicholas Jaquier, portfolio manager at Ninety One. Jaquier suggested that if Ivan Sepeda of the Petro coalition wins, he may be able to undertake structural reforms in the central bank and the Supreme Court to eliminate obstacles to Petro's policy agenda. Hungary The April elections in Hungary present the best opportunity in years for the opposition to end Prime Minister Viktor Orban's 16-year reign. In the center-right camp, the opposition party is leading in the polls over Orbn's right-wing Fidesz party, but the final election result remains uncertain. Currently, concerns about rising living costs are growing, and the Orbn government is trying to alleviate voter concerns through fiscal subsidies. Fitch Ratings downgraded Hungary's credit outlook to negative last year due to a "significant deterioration" in public finance forecasts, reflecting new measures taken prior to the elections. The opposition party promises to repair relations with the EU and lift funding blockages. Citi economist Luis E. Costa estimates that this could mobilize 100 billion (approximately $119 billion), along with other reforms, to "lower fiscal deficits and risk premiums while increasing investment spending." UK While local elections usually struggle to attract foreign investors' attention, the upcoming vote in May could break this trend. The ruling Labour party, led by Keir Starmer, is currently lagging behind the populist Reform Party in polls and faces many challenges in delivering on its promise to strengthen the economy. The market is highly sensitive to signs that fiscal austerity advocate Starmer may be replaced, as recent bond sell-offs indicate. Sam Carter, an economist at Industrial Bank of France, pointed out that under his baseline expectations, if Starmer is replaced by someone else, the new leader will have little room to significantly increase government borrowing. In addition, the next UK parliamentary elections must be held by August 2029. Ethiopia and Zambia Ethiopia and Zambia are both working to overcome difficult debt default situations, and both countries plan to hold elections in the summer. In Ethiopia, the Prosperity Party led by Prime Minister Abiy Ahmed is likely to win in June's elections, as the main opposition party has stated it will boycott the elections. In Zambia, it is widely expected that President Hakainde Hichilema will win in the August elections. However, experts at Chatham House warn that while Zambia has made some progress in debt restructuring and economic reform, the living conditions of the population have not yet substantially improved. Investors are closely monitoring these two countries to find investment opportunities in frontier markets. While Zambia's economy has proven more resilient than expected, with Ethiopia's bonds in default, their trading prices remain above face value. Brazil In the October Brazilian elections, current President Luiz Incio Lula da Silva's approval rating leads that of right-wing senator Flavio Bolsonaro. Flavio is the son of former President Jair Bolsonaro. Although the 80-year-old leftist Lula is in disagreement with former US President Donald Trump on tariffs, the Venezuela issue, and the conviction of the elder Bolsonaro for plotting a coup, he has successfully achieved a truce with Trump to some extent. "If Lula wins the election... it may have a significantly adverse impact on prices," wrote Jeronimo Mansutti of Tellimer, citing concerns in the market about "expanding deficits and rising debt paths" over the next four years. Furthermore, if Lula embarks on a fourth term, this progressive leader may face more conflicts with Trump. However, Jaquier of Ninety One emphasized the value of Lula as a "known quantity" and further elaborated that Lula is pragmatic and likely to appoint a reliable team of professionals to drive fiscal adjustments. United States The November midterm elections in the US, which will determine the control of Congress, will undoubtedly be a crucial test for Trump. Economic resilience is a hot topic that is currently in the spotlight. The White House has hurriedly proposed multiple measures to alleviate concerns about rising living costs, including setting limits on credit card interest rates. Polls show that Americans in general are dissatisfied with the way Trump has handled economic issues. Historically, the party in power often faces setbacks in midterm elections. Recently, Trump has acknowledged that the Republican party may face significant challenges in maintaining its fragile control of Congress. Guy Miller, Chief Market Strategist at Zurich Insurance, said: "Clearly, the president hopes to see strong economic growth and financial market prosperity in the coming months, which will be key factors in his narrative and policy making. After all, the policies formulated for this election will impact each and every one of us."