Regardless of its success at elections, populist momentum can be a very powerful catalyst for reform, with incumbent parties scrambling to counter the wave. As mentioned, the end result is typically a rise in infrastructure spend to stimulate economic growth and social initiatives to combat inequality, which are likely to lead to an increase in consumer spending, with the end result being a rise in inflation.
There are more elections scheduled this year where populist parties are gaining traction. As inequality issues cannot be reversed overnight, uncertainty is likely to remain elevated in 2017, favouring safer, lower-volatility assets. While rising populism doesn’t always end up with the political incumbent losing, some populist policies are typically implemented to assuage the disenfranchised.
Investors can protect their portfolios by gaining exposure to assets that perform well in inflationary environments, such as equities, inflation-linked bonds, precious metals and infrastructure. Populism may have come to the fore in 2016, but its impact will be felt for years to come.
James Butterfill is executive director and head of research and investment strategy at ETF Securities