Gloom and Populism in Emerging Markets

A recent report by the Pew Research Center ( Link), a Washington think-tank that looks at U.S. and global trends, sheds some light on political trends and growth prospects in emerging markets.

Here are some highlights from the report:

The Present is Gloomy   

In the developed world people consider present economic conditions to be very good, at the highest level of approval since 2002. However, the situation in emerging markets is much less positive. The only countries where over half of respondents feel good about the present are Poland, India, Indonesia and the Philippines. In India, 56% see economic conditions as good but this has fallen from 83% in 2017. Only 9% of Brazilians, 17% of Argentines and 27% of Mexicans feel good about present conditions.

The Past Was Better

In most emerging markets there is nostalgia for supposed past “golden ages.” A general belief exists that financial conditions were the same or better twenty years ago. India, Indonesia and Poland are the only countries were a majority believes conditions are better today. In Mexico only 16% believe conditions have improved.

The Future is Bleak

There is a strong consensus in both developed and emerging markets that future generations will be worse off. This is true across-the-board in developed markets. In EM, only Poland, Russia, Indonesia, Nigeria, India and the Philippines are the exceptions. Only 42% of Brazilians, 36% of Mexicans and 37% of Argentines believe that their children will be better off (from currently dire conditions), and the median for EM as a group is 42%. The deterioration in Brazil has been dramatic. In 2013, 77% of Brazilians were confident that their children would have a better future.

Some Thoughts on the Data

  • Given nostalgia for the past and the belief that the future is bleak, it is not surprising that voters are turning away from political incumbents. Trump in the U.S. (nostalgia for 1950-60 manufacturing might); Bolsonaro in Brazil (a return to the stronghanded “law and order” regime of 1960-80); Lopez Obrador in Mexico (rejection of free-market technocrats). With only 16% of Mexicans believing that their situation has improved over the past 20 years, it is not surprising that they look for alternatives. The same goes for Brazilians, of which only 9% feel good about the present.
  • The recent deterioration in present conditions in India should be a worry for investors as we enter an election year. It would not be surprising for the government to pursue more populist policies ahead of the lection.
  • The Pew Research universe is limited and does not consider China. Adding China would probably skew the data more positively.

Here are a few charts from the report:

 

Macro Watch:

India Watch

China Watch:

China Technology Watch

EM Investor Watch

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