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Far right rise mars Merkel win: managers & selectors react

Far right rise mars Merkel win: managers & selectors react

Angela Merkel’s successful push for a fourth term as German Chancellor marks stability at a cost given the creeping rise of more extremist parties in mainstream politics, fund managers have said. 

The right wing populist party Alternativ für Deutschland (AfD) came third in the vote, while Merkel's party the Christian Decomcratic Union and sister part Christian Social Union (CDU/CSU) had the worst results since 1949. 

Citywire + rated John Taylor, high yield bond manager at AllianceBernstein, said the outcome would provide stability for investors, albeit with the worrying element of increasingly extreme parties entering the fray. Ultimately, Taylor said, central bank policy will remain the focal point.

‘This was always expected to be the least exciting election night for a very long time, although the final result makes for some uncomfortable political wrangling ahead. This 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.

‘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.’

Protest vote

The power of populism cannot be overlooked, according to Citywire A-rated Andrew Bosomworth. The Munich-based Pimco bond manager said, while the German outcome does not match the UK or US experience of voter backlash, the AfD will have an influence on policy going forward.

‘We view AfD’s success as a protest vote against the outgoing grand coalition, particularly concerning how Merkel dealt with the refugee crisis. Beyond immigration, however, AfD is deeply divided. Although directly elected to the Bundestag, AfD co-chair Frauke Petry split from her party Monday morning in reaction to fundamental opposition against its right-wing tendencies.

‘Some AfD followers may yearn for the Deutsche mark, but the vast majority of Germans see their country’s future in the euro. Modern Germany is not the Weimar Republic. Should periphery spreads widen in the weeks ahead owing to concerns about Germany’s commitment to the European project, we would view that as noise and an opportunity to fade.’

Fund selector Thomas Romig of Frankfurt-based Assenagon said the result was not as extreme as it was being portrayed outside Germany. He did, however, state Merkel's stranglehold on power had been weakened.

'There are positives in that the government has been pretty much asleep for the past four years, while the discussions will now have to be done openly in parliament rather than just between coalition members, which can only be positive for debate.

'There is still a lot to discuss in terms of coalitions and the regional elections over the next few weeks could also have an impact on the socialist platform, so that needs to be watched. I think a lot of media from outside German has perhaps painted AfD as more extreme than it actually is.

'However, there will be ramifications in the market that the periphery could suffer, as Macron, for example, will face more opposition from parts of the German government if he is seeking money for reforms or to redistribute. The result is not the end of the world but it is a wakeup call for the German government.

Weaker position 

Commenting on the results Martin Moryson, the chief economist at German bank Sal Oppenheim, said that a ‘Jamaica coalition’ between the CDU/CSU, Free Democratic Party (FDP) and the Green Party was the likely.

He added that Merkel was now in a weaker position, as she had not prevented the rise of populism.

‘For stability-orientated Germany it is a bad sign that almost every seventh voter chose the AfD and more than a quarter voted for a radical party.

‘We hope that the coalition government will be able to tackle the important questions of the future. If Germany does not come up with a clear outline of the future of Europe, it could slow down the process to make the European Monetary Union more resliliant.’

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Thomas Romig
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