The three decouplings in the financial market and the rise of global populism.

The Bank of America global research team pointed out in its latest report that global financial markets are facing three historic "decoupling" trends. At the same time, the level of global populism has reached a historical high, pushing investment logic to undergo structural changes. According to the report, first, gold has decoupled from real interest rates: the price of gold has broken the long-standing negative correlation with real interest rates; second, the US dollar has decoupled from interest rate differentials: the trend of the US dollar exchange rate is significantly weaker than the theoretical level implied by yield differentials; third, emerging market local currency bonds have decoupled from US bonds: the correlation of total returns between the two has recently become negative, showing clear differentiation. This means that the explanatory power of the traditional "US bonds - US dollar - gold" framework for allocation strategies is decreasing, and the failure of correlation itself has become a new source of risk. The report also pointed out that "populism" has become a deep structural force driving the current market "decoupling" phenomenon. Historical research shows that after the rise of populist policies in a country, there will be an average period of 10 to 15 years accompanied by economic slowdown, rising inflation, increasing debt ratio, higher tariffs, and a decline in trade openness. Against the backdrop of high levels of populism policy coverage and a significant increase in gold prices, the selection of emerging market assets should focus more on differentiated analysis of "policy credibility and relative fundamentals," rather than simply relying on macro systematic beta. Three major decoupling trends reconstruct market rules The report stated that a particularly noteworthy decoupling has occurred between emerging market local currency bonds and US bonds: the correlation of returns between the two has become negative. Specific data shows that the Bank of America ICE Emerging Markets Local Currency Bond Index (total return in USD) has outperformed US bonds by 28%, approaching the historical high since the resetting of the benchmark in 2013. More crucially, the 52-week rolling correlation turned negative at the beginning of 2026, a rare phenomenon seen in many years. However, there is a significant deviation between fund flows and price movements. EPFR statistics show that net outflows of funds from Asian markets have reached $500 million so far in 2026, and customer feedback indicates that investors are inclined to short interest rates in Asian markets, especially in markets like South Korea and Singapore where loose cycles are approaching an end and valuations are considered to be too high. The significant discrepancy between prices and fund behavior reveals a crowding in the current market structure trend and indicates that short-term reversal risks are accumulating. Populist Wave at a Century High The report analyzes the "decoupling of gold and real interest rates" and the current market's "surface calm" phenomenon - little fluctuations in oil prices and inflation expectations, stock markets at historical highs with low volatility, and differentiated performance of emerging market currencies - within the larger narrative framework of "the long-term impact of populist policies." Citing a study from the American Economic Review (2023) that tracked populist regime cycles in 60 countries globally since 1900, the report found that the proportion of countries governed by populist leaders globally now exceeds any period in the past 120 years, including historical peaks like the 1930s and the 1970s. The study indicates that in the 10 to 15 years after the rise of a country's populist forces, there are typically trends of economic slowdown, rising inflation, higher debt-to-GDP ratios, increased tariffs, and a relative decline in trade openness compared to non-populist countries. The report explains that populism fundamentally reflects a widespread failure and distrust of orthodox economic policies. It is noteworthy that populism is no longer a phenomenon unique to emerging markets and is increasingly common in developed economies as well. Therefore, the report emphasizes that evaluating emerging market assets should focus more on the "relative quality of policies and the relative performance of the economy," and not categorize them as homogenized high-risk asset classes. Furthermore, the report points out that over the past two years, most emerging market currencies have shown a significant positive correlation with gold prices (with a few exceptions like the Indonesian rupiah). This means that during a gold price uptrend, these currencies tend to strengthen simultaneously. This phenomenon is in line with the macro background of global populism policy coverage reaching historical peaks and gold continuing to rise. It clearly indicates that in an environment of increasing policy uncertainty, gold and its associated assets are being given a dual role in the market: as an important store of value and a key indicator of macro sentiment and credit risk. This article is reproduced from "Wall Street See Listen"; GMTEight editor: Chen Siyu.