What next for in­vestors after Ger­man elec­tions?

Un­cer­tain fall-out de­spite Merkel win plus eyes on elec­tions in Ja­pan and Cat­alo­nia

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Ger­man chan­cel­lor An­gela Merkel is still in charge fol­low­ing fed­eral elec­tions (24 Sep) but now faces a dif­fi­cult task in build­ing a govern­ment. So what does this mean for in­vestors with ex­po­sure to Europe?

The surge in sup­port for the anti-im­mi­grant AfD party and an un­der­whelm­ing per­for­mance for main­stream par­ties, in­clud­ing Merkel’s own CDU party and its part­ner CSU, means cob­bling a coali­tion to­gether may take some time. Any re­sult­ing weak­ness in Ger­man eq­ui­ties could be short-lived.

In­vesco Per­pet­ual’s head of Euro­pean eq­ui­ties Jeff Tay­lor reck­ons the po­ten­tial pres­ence of the lib­er­tar­ian FDP party in a coali­tion could re­sult in ma­te­rial tax cuts ‘that could well be pos­i­tive for Euro­pean growth at the mar­gin’, he adds.

In the im­me­di­ate af­ter­math of the elec­tion the euro suf­fered as the re­sult was in­ter­preted as mak­ing nec­es­sary re­form in the euro­zone more dif­fi­cult. This could be a pos­i­tive for Ger­man ex­porters, mak­ing their goods and ser­vices rel­a­tively cheaper for over­seas buy­ers.

In­vestors look­ing for ex­po­sure to Ger­man stocks could con­sider ex­change-traded fund Db X-track­ers

DAX UCITS ETF (XDDX) which tracks a bas­ket of the 30 largest and most ac­tively traded firms on the Frank­furt Stock Ex­change.


There are two other po­lit­i­cal events on the hori­zon which could have im­pli­ca­tions for the mar­kets. In Spain, de­spite the best ef­forts of the govern­ment in Madrid, the Cata­lan re­gion plans to hold an il­le­gal in­de­pen­dence ref­er­en­dum on 1 Oc­to­ber.

If the poll goes ahead any re­sult would not be legally bind­ing but a vote to go it alone could put pres­sure to of­fer the re­gion a le­gal ref­er­en­dum in the fu­ture.

The re­sult­ing un­cer­tainty and the risk of a break up of Spain could put fur­ther pres­sure on the sin­gle cur­rency.

In Ja­pan, prime min­is­ter Shinzo Abe has called a snap elec­tion with Ja­panese me­dia re­port­ing it will take place on 22 Oc­to­ber. After sink­ing in the opin­ion polls, Abe has seen his pop­u­lar­ity improve on ris­ing ten­sions with North Korea.

Jesper Koll, who runs the Ja­panese arm of ETF provider Wis­domTree, says there is now an in­creased chance of a tax hike be­ing an­nounced next year. He says that risks a re­ces­sion in the world’s third largest econ­omy be­cause pre­vi­ous tax hikes prompted forced re­ces­sions and eq­uity bear mar­kets. (TS)

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