Populism is a term used to describe the rise of politicians, or political causes, which are not part of the mainstream, whether that be from a left or right wing political perspective.
Politicians as diverse in outlook as Donald Trump and Jeremy Corbyn have been described as populist, as has the Brexit vote in the UK.
In a letter to investors of his funds Mr Rayner said if central banks gain less independence, as anticipated under a populist government, this would likely mean the government would want to keep interest rates lower for a longer period of time, as lower interest rates are generally popular with the public.
Lower interest rates increase purchasing power in the economy, and so push inflation upwards.
He said: "In the medium to long-term, if populists gain increasing power, expect even more of a focus on short-term ‘solutions’, as well as pressure for pro-growth policies, pro-employment policies, fiscally lose policy and reduced independence of central banks. More government debt and more inflation."
Mr Rayner said these trends are likely to mean that government bonds, which pay a fixed income, will perform badly in the years ahead, as inflation reduces the value of the income.
Instead, he is turning to gold, which he said acts like a safe haven at times of political stress, and China, where there is not the risk of political uncertainty.
Nicola Mai, portfolio manager at Pimco, said the threat of a rise in populist politics in the Eurozone may be "overstated", but she still considered it prudent to be cautious on Eurozone assets due to existing levels of political uncertainty.
In the Eurozone, populism is on the rise with growing pressure from right wing parties in countries such as Germany, Austria and France, and the anti-establishment Five Star Movement and right-wing League parties entering government in Italy.
Mr Rayner said: "Italy’s deputy prime minister recently met with the head of France’s yellow vest movement, leading to escalating tensions between the two countries, previously a generally stable axis in the region.
"European elections in May will provide more visibility on the degree of anti-EU feeling within the EU."
He added: "This is by no means just a European phenomenon - new Brazilian far-right president Bolsonaro is not a member of either of the main parties.
"Trump, while officially representing the Republican party, is certainly not considered a typical Republican, neither is Alexandria Ocasio-Cortez considered a typical Democrat; they both represent the more extreme policies within their parties."
Mr Rayner expects increased political instability in the short-term, which would slow down political progress.
He added: "Markets don’t like uncertainty, political or otherwise, as we’ve seen with trade tensions, the US shutdown and Brexit.
"If politicians can’t provide acceptable solutions in the short-term, maybe other policy makers will step up, such as central banks. Political instability will only be compounded by, for example, financial market or economic instability."
david.thorpe@ft.com
