From politics to portfolios: the market impact of rising populism

Populism has become part of the global landscape, rooted in frustrations over inequality, stagnant mobility, and a sense that mainstream policymakers have failed to adapt to shifting economic realities.

While populist administrations often pursue policies that raise long‑term risks — slower growth, higher inflation, and elevated volatility — they can also generate short‑term support for demand, unlock space for overdue reforms, and create targeted investment opportunities in subsidised or strategically favoured sectors.

Populist governments over time

Source: Populist Leaders and the Economy, Manuel Funke, Moritz Schularick, and Christoph Trebesch, 2023

For bond markets, populist governments often push for expansionary monetary policies to stimulate growth or meet social demands, leading to lower short-term interest rates. These interventions are typically accompanied by rising long-term bond yields, as investors grow concerned about fiscal sustainability, inflation risk, and potential deficit monetisation.

This yield increase reflects more than a technical adjustment — it signals a shift in market expectations around the risk premium required to hold government debt under less predictable policy regimes. The result is a steepening yield curve, with short-term rates held down by policy and long-term rates rising in response to elevated inflation expectations and fiscal uncertainty.

With equities, populist policy shifts — such as tariffs, fiscal expansion, and regulatory interventions — create distinct winners and losers in markets, particularly where government intervention intersects with strategic sectors.

Recent developments in the US — such as golden share arrangements, public-private equity deals, and policy reversals on chip export controls — highlight how political agendas can distort capital allocation and earnings visibility. Geopolitical tensions, including China’s restrictions on AI chip purchases and threats of escalation with the US, further compound uncertainty. At the same time, proposed funding cuts to key innovation agencies risk undermining long-term growth drivers, making asset valuations more fragile in politically charged environments.

For investors, the task is not to dismiss populism outright but to navigate it selectively. Understanding the underlying forces that give rise to populist shifts is essential, as these pressures will continue to shape policy trajectories. A disciplined, sector‑aware, and time‑horizon‑conscious approach — anchored in an assessment of institutional strength and reform credibility — offers the best chance of capturing opportunities while managing the structural risks that accompany populist governance.

This insight is part of our broader analysis on how today’s global shifts are impacting investment opportunities – a dynamic we call The Great Global Restructuring. Find out more.