How the German federal election could affect the stock market
Stocks & ETFsOn September 26th it’s election time in Germany again. But this time is very different to before: Angela Merkel will no longer run as chancellor after 15 years in office. And whoever becomes the new chancellor will inherit a difficult situation: climate change, digitisation, not to mention a pandemic. The difficulties are stacking up. In this article, we’ll take a look at what some of the potential coalitions could mean for the markets.
Traffic light coalition (SPD, FDP and the Greens)
The biggest point of contention in the traffic light coalition (or Ampelkoalition) are the regulations on climate protection. While the FDP would rather encourage voluntary efforts on climate, the SPD and Greens want to regulate it with laws.
In any case, Germany’s car manufacturers would probably benefit most under this coalition. The SPD is traditionally a workers’ party, while the FDP would strongly support domestic manufacturing as an economy-focused party.
Since all car companies are now moving towards electric vehicles, there is probably a consensus to be found under this coalition. Daimler, BMW, Volkswagen, as well as supplier stocks like Continental could benefit significantly. ETFs that specialise in sustainability and green energy like the New Energy ETF (Lyxor) could also benefit.
Overall, it’ll be interesting to see how investors react to a coalition between the SPD and the FDP. The SPD and its candidate for chancellor, Olaf Scholz, have wanted to introduce a financial transaction tax for years. But investors aren’t too worried. According to current analyses, it would primarily affect small investors.
Germany Coalition (CDU / CSU, SPD and FDP)
In the so-called ‘Germany coalition,’ the SPD would probably be the third wheel because the CDU / CSU has always preferred to govern with the FDP. Although both parties are business-friendly, the SPD is more in favour of tax increases for corporations. And even if the SPD gets more votes than the FDP, the FDP will always remain the extended arm of the CDU.
With Armin Laschet as chancellor, the CDU would immediately launch a digitisation ministry. And since the government has already worked with SAP for the Covid-19 app, it would be very interesting to see how SAP shares react. Maybe the German software company will get a big order from the new ministry.
Jamaica Coalition (CDU / CSU, The Greens, FDP)
The FDP does not seem to have regained its old strength. Nevertheless, a few percentage points could be decisive in the end. A coalition between the CDU and the FDP would probably be advantageous for the stock market. Shares in export-oriented companies may rise, albeit cautiously.
Perhaps a car boom would even be possible if liberal economic thinking by the FDP meets electric vehicle funding from the Greens. Again, keep your eye on car stocks like Daimler, BMW, Volkswagen.
Red-Red-Green (SPD, Greens, Die Linke)
Even if SPD leader Scholz has ruled out an alliance with the left, this coalition can still come about if the SPD was forced back into opposition without the left. The consequences for the economy would probably be quite negative. Minimum wages would rise, there would be more regulation and taxation. Equities may fall, and so might the euro, while gold and safe havens could be expected to increase. Companies from the banking and insurance sectors, like Deutsche Bank, Commerzbank and Allianz would be particularly affected.
The big energy companies are already under a lot of pressure from the Greens, but the left would increase this even further. That would be bad news for companies like RWE and E.ON. The biggest controversy in this coalition would be the free trade agreements. The left are against such agreements, and the Greens would probably be dragged along. That could spell bad news for Bayer, Siemens, Fresenius, Hochtief and other companies that rely heavily on the export economy.
The big issues of the future
No matter who takes power, the new government will inherit a very long to-do list! Among the most important issues are:
- The pandemic – this is particularly important for retail and travel stocks.
- Climate protection – crucial for car manufacturers, energy giants and many other industries.
- Digitisation – important for the large cloud companies such as SAP, Adobe, Oracle, Microsoft, etc. It’s also worth taking a look at ETFs like the Cybersecurity and Data Privacy UCITS ETF (Rize).
- European politics and relations with the US, China and Russia – important for currencies like the euro and its pairs like EUR/USD. And, of course, for all export-oriented companies.
- Migration, internal security, industrial policy and social policy also matter. Shares like Thyssenkrupp or ETFs such as the Europe Socially Responsible ETF (Lyxor) could be affected.
Incidentally, we may be surprised by a completely different coalition on election evening. We’ll know the results after 6pm on September 26th – or after a few months of coalition negotiations.
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This article was written by Marvin Engel.
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All views, opinions, and analyses in this article should not be read as personal investment advice and individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
