LIVE MARKETS-Is populism a concern? "Go long financials"

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IS POPULISM A CONCERN? "GO LONG FINANCIALS"

In all of the 12 major developed markets elections held in 2024, the incumbents either lost their majority or were voted out of power in 85% of the cases. That's a first in 120 years!

This eye-catching statistic illustrates the risks of rising populism around the world and UBS believes these could eventually lead to a rise in inflation expectations, something which financials would not dislike.

"A rise in populism means more onshoring, less immigration, higher minimum wages, more fiscal spending and more protectionism - we have seen at least two of these appear as issues in Germany, France, the UK, the US and Japan," UBS strategist Andrew Garthwaite writes in a note.

Garthwaite recommends being "long financials" as a hedge against rising populism. He says current inflation expectations are reasonable but vulnerable to populist pressures.

"Inflation expectations appear reasonable in Europe and the US, and financials are the best-performing sector if they rise. European banks are already discounting 1% rates and c80bp of charge-offs - a mild recession. We stay overweight life insurance and re-insurance."

(Danilo Masoni)

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