The Cost of Populism
The potential rise of the populist movement in developed economies will create clear and lasting costs for investors. As well as the social and political consequences, there are also risks to investment returns.
The tide of populism will bring with it a profound shift in the political and economic environments, which will have far-reaching implications for investors, both potentially positive and negative.
The focus on fiscal, rather than monetary, actions resulting from the populist vote increases the likelihood of inflation, but also brings the threat of stagflation, an aggressive bond market correction and greater financial market volatility. Steepening yield curves, meanwhile, would provide many investors with much-needed relief as discount rates improve – as long as they can tolerate the downside pressure on bond prices.
However, if populism were to threaten the eurozone, investors could face heavy losses.
Inequality sits at the heart of populism. We have been through a period where the gains of the meagre economic growth achieved since the financial crisis have been unequally shared, with the elite getting the lion’s share. The benefits of globalisation have accrued to the top 1% of earners and emerging markets primarily, while the bottom 50% of earners have seen below-average income growth.
READ MORE in this month's Portfolio Institutional magazine.
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