In trying to forecast whether the administration of President Donald J. Trump will be positive for stocks in the long term, one approach is to examine the experience of other countries that elected populist leaders. Two studies cited by Bloomberg indicate that the answer may well be "yes." 

The Neon Liberty Study

A study by Neon Liberty Capital Management looked at local stock market performance under ten of the most well-known populist leaders of the 21st century. Among these leaders are Vladimir Putin of Russia, Luis Inácio Lula da Silva of Brazil, Recep Tayyip Erdogan of Turkey and Néstor Kirchner of Argentina. Neon Liberty found that local stock markets rose, on average, by 155% in U.S. dollar terms over the first three years after the ten leaders in the study were elected, as reported in one Bloomberg story. In some countries, the rallies persisted for up to a decade.

The reason, as told to Bloomberg by money manager Satyen Mehta of Neon Liberty, is that populist leaders typically launch short-term stimulus programs that spur economic growth. On the other hand, such programs tend to increase public debt, and these countries' sovereign bonds suffer as a result.

Analysis by Bloomberg indicates that left-wing populists are particularly good for their local stock markets, producing average three-year gains of 221%. Under right-wing populists, the three-year average gain is 122%. Where data is available, Bloomberg calculates average five-year gains of 355% and ten-year gains of 442% after the election of populists, of whatever political stripe.

The experiences of Venezuela under Hugo Chavez and Argentina under Nestor Kirchner offer a caveat, Bloomberg adds. In these countries, money flowed into stocks as a hedge against rapidly rising inflation, and in response to capital controls that kept domestic investors' savings at home.

The University of Bonn Study

A study by economics professor Moritz Schularick at the University of Bonn in Germany looked at how the markets reacted after 27 elections of populist leaders over the past 100 years. This study shows that the median increase in stock prices exceeded 25% in two years and reached 45% in five years, according to a report in Bloomberg. Schularick found that the median five-year gain under right-wing populists was about 50%, versus about 12% under left-wingers, whereas he observed median gains close to 25% for both varieties of populists over their first two years, Bloomberg says.

Schularick also calculated that bond yields fell by a median of 12.7 percent in the first two years after populists were elected, per Bloomberg. Additionally, he found that GDP enjoys a median increase of 1.8% after five years of populist government, with both spending and investment rising.

Where Trump Fits In

The Schularick study, but not the Neon Liberty study, looked at the market's reaction to Trump. While it's much too early to compile fully-comparable data for Trump, the 11.6% gain in the S&P 500 Index (SPX) from the Election Day close to the close on Wednesday is well within the bounds of Schularick's findings. Additionally, Schularick observes that protectionism, competitive devaluations and public spending are proposed by the typical populist leader, according to Bloomberg. The Trump program is broadly in line with these policy prescriptions.