Barron's

Jan. 4, 2019 9:00 a.m. ET

Geopolitics is top of mind for emerging-market investors at the dawn of 2019, as U.S. trade negotiators head for Beijing on Jan. 7. But national politics also loom large in other key markets. Nowhere more so than in Brazil, where capitalists’ enthusiasm for new President Jair Bolsonaro rests on the assumption that he will push through long-stymied pro-market reforms.

That won’t be easy. Bolsonaro’s Social Liberal Party controls just one-tenth of the 513 seats in the lower house of Brazil’s Congress; the rest are split among 30 other parties. And the mother of all reforms, a pension cutback that would force voters to retire in their 60s, not their 50s, requires a three-fifths majority.

There’s little sign that Bolsonaro, whose role models include Donald Trump and the late Chilean dictator Augusto Pinochet, has the horse-trading chops to forge such a consensus, though unlike either, he takes office with a personal approval rating near two-thirds. The first tea leaves should spill from the cup over the next month or so, when the Congress’ two chambers select their presidents.

In India, a general election required by May became a lot more interesting when Prime Minister Narendra Modi’s BJP Party lost three state polls to the opposition Congress Party in December. Modi in jeopardy is an alarming prospect for investors, because he has delivered for them in aggregate. The iShares MSCI India exchange-traded fund (ticker: INDA) has gained 40% since the business-oriented leader surged to power five years ago, while global emerging markets are flat. Even if Modi hangs on, the price may be regrettable policies, like raiding the central bank’s currency reserves for a state spending spurt, or worse, stoking ethnic tensions to fire up his Hindu base.

What Hindu-Moslem relations are to India, the tangled history of different races is to South Africa. The ruling African National Congress will likely retain power there in elections that are due by May, securing a full term for President Cyril Ramaphosa. But campaign rhetoric will be intensively scrutinized as it pertains to “land reform,” which the ANC is struggling to enact without tipping into land expropriation from white farmers in favor of the black majority. Ramaphosa has finessed this issue without settling it since grabbing power in an intraparty coup a year ago. Any hint of radicalization will further whack the attractiveness of a market that has been a weak draw since the so-called commodities supercycle collapsed earlier in this decade.

A final flashpoint in the coming months could be Thailand, whose market has been an India-style outperformer since a military junta seized control of the country in 2014. The generals look set to risk an election in late February. The people’s choice will be constrained since the upper house of parliament will remain filled with junta appointees. But if the opposition, still united by loyalty to the deposed Thaksin family, takes the lower house, politics could spill into the streets again, imperiling Thailand’s critical tourist trade and other sectors. Neighboring Indonesia, in contrast, looks like a beacon of stability, with well-regarded President Joko Widodo cruising to re-election in May in a rematch with his 2014 opponent.

Politics can bring positive changes, though these are typically more gradual and less headline-grabbing than the calamities. A generation ago, the prospect of Brazil, South Africa, and Indonesia as stable democracies, and India as a dynamic economic power, might have seemed far-fetched. So celebrate the dense election season, but watch your wallet.