Investors will be looking at:
- How quickly a government can be formed
- Whether there is a two-thirds majority in parliament that supports easing Germany’s ‘debt brake’ – a spending cap on government borrowing each year that critics say has held back investment and growth
“If there are long discussions or three parties involved, that would complicate things,” said Simon Keller, equity research analyst at Hauck Aufhäuser Investment Banking.
Euro
The euro is expected to benefit from any increase in government spending that boosts the economic outlook.
“A grand coalition (CDU/CSU and SPD), alongside a two-thirds majority needed for the debt-brake reforms, would likely be euro-positive,” Morgan Stanley said.
Bonds
A rise in fiscal spending could increase the supply of German government bonds, thereby lifting yields.
Citi analysts say peripheral bond markets such as Italy could also draw support if a CDU-led mainstream majority coalition emerges, as any steps to boost Germany’s economy are viewed positively for the euro zone as a whole.
Equities
The election could boost German economy-exposed stocks if corporate tax cuts and stronger growth follow.
While Germany’s benchmark DAX index of often globally-focused stocks is near record highs, mid- and small-caps have lagged as companies more exposed to weak domestic growth underperform.
Also read: German Election: Conservatives win, AfD and potential coalitions
Source: Reuters
