Three Quick Hits on International Politics

Editors’ Note: MarketMinder prefers no politician nor any party. We assess developments for their potential market impact only.

Summer may be global politics’ traditional “silly season” of vacations and boredom, but spring seems to be the season of things happening. The past few days brought a flurry of activity, with elections in Emerging Markets Poland and South Korea and a government collapse in the Netherlands, likely setting up a snap election. In our view, all fit with this year’s general themes of gridlock and falling uncertainty, benefiting international stocks.

Here Comes Another Dutch Election

The Netherlands’ fragile, four-party coalition government splintered Tuesday, after the populist Party for Freedom’s Leader Geert Wilders yanked his support. The issue that set Wilders off is a longstanding divide between his party and the rest of the coalition over policing and controlling immigration. This particular debate is what we consider sociology—important to society but beyond markets’ purview. More relevant is the fact that this government collapse led to Prime Minister Dick Schoof’s resignation, which likely tees up a snap election.

For markets, a snap election ordinarily increases political uncertainty—and we guess that holds here to an extent. But this is also basically the status quo in the Netherlands. This coalition only “ruled” for 11 months, barely longer than the 223 days it took to form it—and the government barely achieved anything of note. Maybe the results from the next vote make this faster, but polling from Ipsos suggests another splintered Parliament is likely, perhaps even more fractured than the current, as the New Social Contract party looks to have virtually disintegrated after its founder and leader resigned in April.

That said, whether you have a caretaker prime minister in power like the present—or a coalition of parties doing little more than going along to get along—the likely winner of the next election is gridlock, which is a fine thing for a competitive, developed economy like the Netherlands’. Voters may hate gridlock, but an inactive government keeps legislative risk low, giving businesses latitude to take risk and invest.

South Korea Gets a New President

The political uncertainty that erupted from former South Korean President Yoon Suk Yeol’s martial law declaration last December (which resulted in his impeachment and which the Constitutional Court later ruled illegal) has finished falling at last, with the election to choose his successor now complete. As polling foretold, the center-left Democratic Party’s (DP) Lee Jae-myung won handily.

Much of the coverage focused on Lee’s personality and long-running legal issues—more sociology, in our view. Markets generally look past such things and focus on policy, particularly economic policy. And on that front, the status quo looks likely to continue. Lee’s campaign pledges focused on fostering economic growth, cutting red tape and reforming the chaebol system that has made it difficult for small and midsized businesses to compete with the country’s giant conglomerates. All of these sound nice and would address many investors’ longstanding gripes, but they echo pledges from past leaders of both main parties … pledges that haven’t resulted in much action. Similarly, Lee has made it a priority for South Korea to win a promotion from MSCI’s Emerging Markets staple to developed market status, but the reforms to do this are slow-moving and already in progress.

So overall, we doubt much changes. A massive tax-and-spend push, which investors previously feared when the DP took power, doesn’t appear to be on the agenda. The DP has a solid majority in the National Assembly, theoretically making legislation easier to pass, but tariff negotiations with the Trump administration probably garner the most energy for now. And given past presidents haven’t been able to pass meaningful chaebol reform despite having majorities in the National Assembly, we doubt much happens on that front.

Hence, the most significant takeaway from the election is likely that it happened, ending the remaining uncertainty and letting investors move on. Not that markets waited, given Korean stocks are up since the saga began, but sometimes sentiment benefits from having a bow tied on these things. Closure, of sorts.

Poland Gets a New President, Too

Rounding things out, Poland also elected a new president, with the Law and Justice Party’s Karol Nawrocki edging out Warsaw Mayor Rafal Trzaskowski in Sunday’s runoff. This puts the presidency seemingly at odds with the legislature, given Law and Justice is a nationalist party while Prime Minister Donald Tusk and his coalition government are traditionally centrist, hence there is a lot of talk about the election pulling Polish politics in competing directions.

A lot of this, as is typical, is based on personalities and rhetoric—all of which markets tune out in their laser focus on policy. And policy-wise, we think this election extends the status quo. Poland’s president doesn’t set the legislative agenda but does have veto power, and overturning a veto in the legislature requires a three-fifths majority. Tusk’s government doesn’t have this and was vetoed an awful lot by outgoing President Andrzej Duda, an independent who allied with Law and Justice. Tusk couldn’t override those vetoes, and we suspect it will just be more of the same under Nawrocki.

Which is all fine for stocks. Onlookers may see room for improvement in Poland’s economic policy, but markets are already doing just fine with the status quo, benefiting from Europe’s broader outperformance. Emerging Europe tends to get a nice halo effect when developed Europe does well, and extended gridlock merely clears the runway for this to continue. If a snap election results from Tusk’s decision to call a confidence vote, we could see uncertainty spike, but given there were already questions about how long his disparate coalition could survive, we doubt markets would be hugely surprised.