Two large democratic emerging markets - Indonesia and India - held elections this year. In February, the Indonesian people elected Prabowo Subianto as their president and also chose to continue the decade-long economic policies of the previous president, Joko Widodo, which emphasized foreign trade and investment and infrastructure development. In India, Prime Minister Narendra Modi secured a historic third term, albeit with a reduced margin of victory compared to his previous wins in 2014 and 2019. As a result, the government's economic agenda is expected to remain focused on infrastructure development and digitalization.

In both countries, the incumbent governments managed to stay in office, ensuring the continuation of their regimes and giving investors more confidence about the stability of their political and economic trajectories. As we explained in a previous issue of the Horizons, investors often focus on political stability as an indicator of (emerging) market risk and on economic growth as an indicator of returns. The elections in India and Indonesia have provided the former, and both countries already have the ingredients for the latter, resulting in booming (stock) markets.

Although Indonesia also experienced a boom period before the Asian financial crisis of 1997, it is India that has attracted more attention from global investors in recent years. According to Goldman Sachs, the country's equities have delivered the best compound annual returns in Asia over the past two decades, significantly outperforming the broader emerging market or world indices. In October this year, however, the Indian stock market lost momentum as global funds made a net withdrawal of nearly $11 billion amid slowing economic growth. This underlines the significant difference between the two countries.

Although Indonesia is also experiencing slower growth, it has an important advantage compared to India when looking to the future: it scores higher in terms of economic freedom. The country ranks 53rd on the Economic Freedom Index while India ranks 126th. As stock market returns are highly correlated with economic freedom, it is possible that Indonesia will overtake India to become the emerging market of choice for global investors.