The pattern of outsize returns for countries run by populists has been seen from Brazil’s Luiz Inacio Lula da Silva to Russia’s Vladimir Putin, as well as in Poland, Egypt and India. Under leaders generally considered leftist, equities have done particularly well, producing 221 percent returns in three years. Right-wing heads of state saw 122 percent gains over the same period, according to data compiled by Bloomberg.
The numbers get a little trickier longer term, but for countries where there’s available data stock investors saw returns of 355 percent in the populist countries over five years and 442 percent 10 years down the road.
Read more: How Do You Know a Populist When You See One?
Mehta, who helps oversee $1.5 billion of emerging-market assets at Neon Liberty Capital, knows from experience what can happen when you discount a populist. In the run-up to South Africa’s 1994 presidential election, he took an underweight position on the nation’s stocks amid concerns the ANC party and its revolutionary anti-apartheid candidate Nelson Mandela would nationalize assets and not pay the owners fair compensation.
Money managers quickly realized that Mandela wasn’t only a populist peacemaker, but a champion of capital markets. South African stocks ended up gaining 41 percent in the three years after his election as the nation’s top trading partners dropped apartheid-era sanctions and the economy rebounded from a recession and crippling drought.
New Age of Populism
To many investors, populism remains a dirty word. In March, Ray Dalio, founder of Bridgewater Associates, sounded the alarm on its global rise: by his count, at the highest level since the 1930s. Bond gurus like Franklin Templeton’s Michael Hasenstab have flocked to Latin America specifically because it’s an outlier, seemingly turning away from populism.
Jan Dehn, the head of research in London at Ashmore Group, which oversees about $52 billion of assets, said that while stimulus policies from populists often lead to a bounce in the stock market, the gains come at the expense of the country’s future.
"You may get a warm fuzzy feeling short-term, but long-term you are definitely worse off than if you had not done it in the first place," he said.
In the bond market, the pain appears much earlier. Hungary’s five-year dollar bonds lost 28 percent in the year after Viktor Orban’s 1998 election, while similar maturity notes from Thailand lost 24 percent after Thaksin Shinawatra was elected in 2001. Philippine dollar bonds are down 1.4 percent since Duterte’s election last May.