Five investment voices on the German election

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The aftermath of the German Election seems to be more interesting that the run-up. Angela Merkel’s Christian Democratic Union (CDU) and its Bavarian sister party the Christian Social Union got their worst result since 1949, the Social Democratic Party (SDP) polled just 20%.

Most importantly, the far-right AfD party attracted 13.5% of the vote, becoming the third largest party in the Bundestag.


Although marred by Merkel’s underwhelming performance and the worrying rise of the populist extreme right, mood among investors remains fairly optimistic. Yet, concerns about EU reform and further integration remain.

Here are a selection of views from the wealth and asset management industry.

Jaisal Pastakia, Heartwood Investment Management investment manager

‘The season of general elections in Europe has now ended for 2017, but it also ends with a reminder that populism is far from dead. The AFD are the big winners and will enter the Bundestag for the first time as the third largest party. The SPD has ruled out another Grand Coalition, so it will probably fall to the FDP and the Greens to form a coalition. That leaves the question about what Germany’s new approach to the European project will be. The FDP’s Lindner has made it clear that he is not a fan of Macron’s vision of Europe. It leaves more uncertainty about how Europe moves forward towards its integrationist vision.

‘Markets are still absorbing the news, but so far the euro is down against the US dollar, German bund yields are little changed and peripheral bond yield spreads are slightly higher. European equities have opened a little lower too. Overall a slight feeling of disappointment from financial markets this morning.’

John Taylor, portfolio manager, Alliance Bernstein

‘[The election result] should not distract the markets too much as they attempt to read the tea leaves from recent central bank meetings where a US or even UK rate hike and the end of European QE remain in focus’. With such uncertainties ahead, investors should consider the impact of reduced central bank intervention on those assets being directly purchased and also on the broader risk asset environment. At these times, investors should think about being invested in parts of the market which have a robust fundamental outlook, such as bank bonds and local emerging markets, where a strong disinflationary trend is in place supporting further rises in local currency EM bonds.’

David Zahn, head of European fixed income, Franklin Templeton Investments

‘Populism tends to recede when the economy is doing better, but it can quickly re-emerge when discontent sets in. Therefore, we expect the economy to be a major focus of political attention. People don’t tend to take to the streets when they have food on the table. ‘But, Merkel may also want to think about her approach to the greater integration of the European Union. In the past, Merkel seemed cautiously supportive of closer political and fiscal union across the EU. She may now have to think more carefully about how those developments would play with her domestic audience. ‘On the other hand, given the pro-European credentials of France’s new president, Emmanuel Macron, Merkel is unlikely to do anything that could jeopardise her perceived role as de facto leader of Europe.’

Nick Peters, multi asset portfolio manager, Fidelity International

‘I remain positive on European equities, which should benefit from the strong fundamental picture. Europe’s equity market has lagged other developed markets (excluding the impact of currency) and so offers some potential for catch up, particularly given valuations do not looked stretched relative to recent history and with earnings per share growth the fastest among developed markets.

The backdrop also supports the rationale for small cap eurozone equities which should benefit most from the growing expansion of domestic demand and any agreement to cut corporate taxes. Merkel’s governments have promoted German growth mainly through external competitiveness and, although there is a need to re-balance the economy somewhat, it is unlikely the new government will significantly change tact with Merkel still chancellor. This should be positive for export orientated sectors, such as industrials and healthcare, though the auto sector faces some stronger specific challenges that will be important for relative performance.’

Timothy Graf, head of macro strategy EMEA, State Street Global Markets

‘This election was always going to be most interesting during the coalition-building process, after the ballots were counted. With that in mind, this weekend’s results offer the most intrigue for the coming months. In forcing German chancellor, Angela Merkel to cobble together a coalition with at least two other parties, the potential for headline risk is at its highest.

‘While the actual market impact is likely to be minimal over the medium-term, this weekend’s result does introduce more risk into European political proceedings than previously estimated.’


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