Donald Trump’s election in 2016 was a surprise to many, given the reality-TV star’s hardline campaign pledges to ban Muslims from entering the United States and deport every undocumented immigrant. Most pundits considered those an unlikely policies for winning the White House.
But it worked. And not just for Trump. Other candidates with similarly unorthodox, hardline and nativist views have risen to their countries’ top political posts in recent years. Rodrigo Duterte in the Philippines and Viktor Orban in Hungary preceded Trump with pledges to hunt down and kill drug dealers and references to immigrants as “poison” and “Muslim invaders.”
Then there’s the recently-elected “Trump of Mexico,” Andres Manuel Lopez Obrador (AMLO), and the “Trump of Brazil,” Jair Bolsonaro, who were compared to the American president because of their nationalistic and populist rhetoric (though, Lopez Obrador is politically much more akin to U.S. Senator Bernie Sanders than Trump).
Hardline politicians have come with market rallies
For investors, the wave of hardline politicians has meant a bonanza of profits. While Orban and Duterte were seen as small-time stories by most market participants, Trump’s ascent in the United States was met with a massive stock market run-up. Similarly, the stock market in Mexico rallied ahead of AMLO’s victory, and as Bolsonaro’s lead in Brazilian election polls rose so did the country’s equity market to the highest on record. In fact, it was the world’s only major stock market to rise during the month of October.
“I wish I had a whole long list of those because they’re great opportunities to make money,” Jan Dehn, head of research at Ashmore Investment Management in London, said of the wave of populist governments recently coming to power.
While in the past, populist governments were known to nationalize and restrict private industry, leaving investors in a lurch, the new wave of nationalists have come to power promoting fiscal stimulus and laissez-faire market regulation. GDP growth in Hungary, Poland, the Philippines and the U.S. accelerated in the two years that followed the election of populist leaders.
Neil Shearing, chief economist at Capital Economics, points out that these pledges and reforms have driven short-term metrics of economic growth and activity higher.
Long term, this is negative
“Equity markets and bond markets rarely look more than six to 12 months ahead,” Shearing told Yahoo Finance. “In the short term it’s been quite clearly positive. Corporate earnings in the U.S. are up, the economy’s humming along at a decent pace, there’s no signs really of marked increase in inflation pressures. So there’s nothing really at this juncture for markets to take fright over.”
He and other market strategists warn, however, that in the long term this is a negative story.
“It’s that the more malign effects take hold over the longer term and manifest themselves in lower trend rates of growth,” Shearing said. “It’s quite difficult to focus that into an equity market whose focus tends to be six to 12 months ahead.”
For investors like Dehn who are seeking such equity returns the search continues for the next Trump. However, they’re not sure where the next major power change will come from, given the volatility in polls and unpredictability of the candidates who rise to power.
Jacob Shapiro, director of analysis at Geopolitical Futures, a global think tank that studies political movements and machinations, said that while the next Trump or Bolsonaro may be hard to spot, the conditions that sweep them into power are easy to see and are growing in a number of places. He doesn’t see a halt to the populist wave, because the conditions that created it are still largely intact.
“What’s really going on is you have a global economic system that has basically been running on cheap money, easy capital since 2008 and [now] I think the global economic outlook is trending downward,” Shapiro told Yahoo Finance.
Shapiro also points to high levels of indebtedness in a country as contributing to the appeal of populists.
“In some countries that are more exposed or more unstable or who have not shared in the global recovery as much, people are gravitating toward those arguments – that, ‘if we isolate ourselves, if we protect ourselves, we have to make sure that what we do is best for us,'” Shapiro added. “That’s where some of those arguments start to gain traction.”
At the top of Shapiro’s list is Canada where Prime Minister Justin Trudeau has seen his favorability fall as the economy has failed to break out and the country’s central bank is on pace to continue raising interest rates. The country heads to the polls next year.
Kevin O’Leary, a firebrand and television star much like Trump, gained some traction early, but dropped his bid for leadership of Canada’s opposition Conservative Party after the “Shark Tank” star said he couldn’t beat Trudeau. He did, however, endorse Maxime Bernier, an anti-immigrant, far-right ideologue who has since left the Conservative Party to found his own People’s Party of Canada.
The Conservatives are currently led by the largely mainstream Andrew Scheer, but may be in search of new leadership. Doug Ford, the outspoken brother of the late Toronto Mayor Rob Ford, recently was elected as premier of Ontario, Canada’s most populous province. His candidacy too drew comparisons to Trump.
If the Conservatives can retake control of Canada’s parliament it could be a big boon for the energy-heavy markets there, some say.
“Market participants would undoubtedly welcome a rollback of the regulatory barriers and taxation policies that have constrained investment, particularly in the energy sector,” said Karl Schamotta, director of FX strategy and structured products at Cambridge Global Payments in Toronto.
While most market strategists said they viewed a swing toward the politics of Trump as unlikely in Canada, none who spoke to Yahoo Finance were willing to completely write off the possibility.
“The national character is a little bit different to other countries where you’ve seen populist politicians take root,” said Shaun Osborne, chief currency strategist at ScotiaBank in Toronto. “But you have it in Mexico, you have it the U.S., so watch this space. Things may change.”
‘Make Indonesia great again’
The trend toward populism also remains present in many emerging markets like China, Russia, India, Turkey and the Philippines, which already have strongly nationalistic leaders. As Capital Economics’ Shearing points out, including Brazil, these countries account for well over 50% of the world’s gross domestic product.
Adding significantly to that could be Indonesia, a country home to more than 260 million people and a $1 trillion GDP. Current President Joko Widodo, a fairly moderate politician popularly known as Jacowi, is currently performing well in polls, but some think his opponent, Prabowo Subianto, a businessman and former lieutenant general in the Indonesia’s special forces who has embraced ‘Make Indonesia great again‘ rhetoric, is being underestimated.
Reza Siregar, an economic consultant for the Institute of International Finance and former International Monetary Fund official, believes current economic trends and missteps by Jacowi’s campaign could open the door to to Subianto.
“If the economy turns south, I’m worried about Jacowi,” Siregar told Yahoo Finance. “I don’t think it’s going to be that winnable an election for Jacowi, not like what you’re seeing in the polls right now.”
Indonesia’s weakening rupiah currency, the economy’s failure to live up to the president’s 7% growth target and his focus on religious issues are all issues that could fell the Widodo in next year’s elections, Siregar said. He also noted that polls are unreliable because 2019 will be the first year that Indonesia votes in parliamentary and presidential elections in the same year. Parliamentary elections typically dictate who will be the country’s next president.
Geopolitical Futures’ Shapiro also sees the potential for hardline populism in much of Europe, where Hungary’s Orban already holds power along with Poland’s Law and Justice Party and the recently elected League and Five-Star Movement coalition in Italy, where leaders of both have been referred to as the “Italian Donald Trump.”
In particular, Shapiro says he’s watching Nordic countries like Sweden, Denmark and Norway, where division and an inability to form coalitions are beginning to harden among political parties. Hardline nationalist and anti-immigration parties have gained increasing popularity among voters in those countries recently.
“Those are again countries with high rates of debt where you’ve had establishment parties in power for a long time that people are getting tired of,” he said. “And people are feeling like their interests aren’t being so well represented.”