From expectations of Japan's aggressive fiscal expansion, to the political shift towards the right in Latin America, and uncertainties surrounding U.S. midterm elections, a series of political events are injecting new layers of uncertainty into an already fragile global market.
Global markets are facing a dual impact from the volatility of U.S. policies and geopolitical tensions, while the concentrated wave of elections in various countries in 2026 will undoubtedly add fuel to this turmoil. From Japan in East Asia to Brazil in South America, the uncertainty surrounding electoral outcomes is reshaping investment logic.
This weekend's upcoming Japanese election is considered one of the most unpredictable contests in recent years, while a series of polls in Latin America will also test whether the region’s “political shift to the right” trend is solidifying.
Below is a preview of the key elections in 2026 that will have the most significant influence on capital markets:
Japan: A High-Stakes Gamble on Fiscal Expansion (February 8)
Japan will hold a snap election on February 8. As the developed economy with the highest debt-to-GDP ratio, this election could further loosen Japan’s fiscal discipline.
The incumbent Japanese Prime Minister, Sanae Takachi, aims to convert her personal approval ratings into votes to consolidate her ruling coalition’s position in parliament, thereby paving the way for her expansionary fiscal policy. However, the latest polls indicate that her approval rating has slightly declined.
Investors widely anticipate continued pressure on Japan’s bond market. Some analysts predict that Japan’s 10-year government bond yield will rise from its current level of just above 2% to 3% this year. Notably, the traditional correlation between the yen exchange rate and the U.S.-Japan interest rate differential changed last year, and market focus has now fully shifted to the impact of fiscal stimulus size on currency.
Colombia: Anticipation of the Right-Wing Resurgence (Starting March 2)
Colombia will begin multiple rounds of voting in March to elect a new legislature and president, succeeding the incumbent left-wing president, Gustavo Petro, who previously clashed with U.S. President Trump over tariff issues.
Although Colombia’s stock market outperformed its Latin American peers last year, bond investors are more hopeful that the “rightward shift” sweeping across Latin America will extend to Colombia, restoring orthodox economic policies. Currently, Colombia’s stock market is leading the Latin American market in 2025, with year-to-date performance surpassing that of Brazil and Mexico.
Nicolas Jaquier, a portfolio manager at Ninety One, analyzed: 'If the political power shifts to the right, fiscal adjustments could become possible.' Conversely, if Ivan Cepeda, an ally of Petro, wins the election, he may implement structural reforms to the central bank and the supreme court, thereby removing institutional barriers that previously hindered the implementation of radical left-wing policies.
Hungary: Orban’s Regime Defense Battle (April 12)
The April general election represents the best opportunity for Hungary’s opposition to end Prime Minister Viktor Orban’s 16-year rule. The center-right party Tisza leads in polls over Orban’s right-wing Fidesz, but the final outcome remains highly uncertain.
Faced with high living costs, Orban has used fiscal measures to appease voters. Fitch Ratings downgraded the country’s credit rating outlook to 'negative' last year due to a significant deterioration in its public finances.
If the opposition party Tisza wins, it has pledged to repair relations with the EU and unfreeze funds. Luis E. Costa, an analyst at Citi, estimates this could release approximately €10 billion (about $11.9 billion), which, combined with other reforms, would help 'increase investment spending, reduce fiscal deficits, and lower risk premiums.'
UK: Local Elections Stir Bond Market Sentiment (May 7)
Foreign investors typically do not pay much attention to local elections in the UK, but this May’s vote is an exception. Keir Starmer’s ruling Labour Party is trailing behind the populist Reform UK in opinion polls and struggling to deliver on economic promises.
The market is extremely sensitive to any signals that might lead to the removal of this fiscally restrained leader, as evidenced by the recent bond sell-off. Sam Cartwright, a UK economist at Societe Generale, believes that even if Starmer is replaced (his baseline prediction), the new leader will have little room to significantly increase government borrowing. The UK’s next parliamentary election must be held by August 2029 at the latest.
Ethiopia and Zambia: A Test of Recovery in Frontier Markets (Summer)
Ethiopia and Zambia, both striving to emerge from the shadow of debt default, will hold elections this summer.
The Prosperity Party, led by Ethiopian Prime Minister Abiy Ahmed, is almost certain to win the vote in June due to the planned boycott by major opposition groups. In Zambia, incumbent President Hakainde Hichilema is expected to secure re-election in August, despite warnings from the think tank Chatham House that, although progress has been made in debt restructuring and economic reforms, living standards for the population have yet to see substantial improvement.
As investors search for opportunities in frontier markets, these two countries are garnering significant attention. Zambia's economy has demonstrated unexpected resilience, while Ethiopia's defaulted bonds are currently trading above par value.
Brazil: The Showdown Between Lula and the Bolsonaro Family (October 4)
Brazilian President Luiz Inacio Lula da Silva is currently leading in the polls for the October general election against Flavio Bolsonaro, a right-wing senator and son of former President Jair Bolsonaro.
Despite disagreements over tariffs, Venezuela, and the conviction of former President Bolsonaro for alleged coup involvement, the 80-year-old leftist veteran Lula has managed to reach a tacit truce with US President Trump.
Tellimer analyst Geronimo Mansutti noted, 'A victory for Lula could be negative for asset prices.' The market fears this would mean 'another four years on a path of high deficits and high debt.' Brazil’s Treasury Department has revised its forecast for the country’s total debt peak from 84.3% in 2028 to 88.6% in 2032. Additionally, should Lula begin a fourth term, the progressive leader may face more direct confrontations with Trump.
However, some argue that Lula represents a 'known variable.' Jaquier from Ninety One pointed out that Lula exhibits pragmatism and is likely to appoint a credible team to implement necessary fiscal adjustments.
US: Midterm Elections and Trump’s Midterm Test (November 3)
The November midterm elections in the United States will determine control of Congress, marking a crucial test for Trump.
'Affordability' has become the central concern for American voters. The White House is rushing to introduce proposals, including limits on credit card interest rates, to alleviate public anxiety over the cost of living.
Polls indicate that the American public is generally dissatisfied with Trump's economic governance. Historical data shows that the incumbent president's party usually performs poorly in midterm elections. Trump recently also acknowledged that the Republican Party will face an uphill battle to maintain its slim control over Congress.
Guy Miller, Chief Market Strategist at Zurich Insurance, stated: "It is evident that the president wants to see economic prosperity and a rebound in financial markets, which will be the core of his policy narrative in the coming months. The policy direction before the election will directly impact all of our portfolios."
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Editor/Melody