Trader’s Guide to Elections in Germany: Winners and Losers

As voters in Europe’s largest economy turn to the polls, investors have a lot to hope for and some cause for alarm.

Voting intentions surveys show no jumps in support for populist and extreme candidates who could significantly disrupt markets in Germany and beyond. Barring a savage failure by pollsters, a traditional party-led coalition with a moderate Chancellor will succeed Angela Merkel’s government – perhaps after protracted negotiations that could last for weeks or months.

Support from political parties for more investment and public support for stricter climate policies could prove to be a boon for stocks, especially companies well positioned to transition to a low-carbon economy. .

“The German elections could be a catalyst for companies in the energy transition. Said Roland Kaloyan, head of European equity strategy at Societe Generale SA. “We’re probably going to end up with a government with a strong environmental mandate. “

Here is our guide to the potential winners and losers of this election in the stock markets.

“All major political parties have said they want to step up Germany’s climate ambitions on the basis of the country having an ambitious 65% CO2 reduction target by 2030,” wrote Barclays Plc strategists, including Peter Crampton, in a note to customers. The emerging consensus will support stocks such as E.ON SE, RWE AG and Encavis AG, on which Barclays has a recommendation to overweight.

Societe Generale’s strategists are of the same opinion and recommend a basket of stocks likely to benefit from decarbonization in Europe. Sanford C. Bernstein & Co. strategists named Vestas Wind Systems A / S, Siemens Gamesa Renewable Energy SA and Nordex SE as the likely winners of the vote.

Green stocks could use support, after poor performance so far in 2021.

In addition to the emerging climate consensus, all major parties agree that Germany needs more investment.

The manifestos of the parties of the center-left SPD, the center-right CDU / CSU, the Greens and the Left party identify railways, public transport, charging stations for electric vehicles and Internet infrastructure among areas where more money should flow.

Capital goods and technology companies such as Infineon Technologies AG could benefit from the surge in investment, according to Felix Huefner, chief German economist at UBS Group AG.

While the SPD, which leads the polls, and the Greens have estimated at around 50 billion euros ($ 59 billion) the additional funding required annually from public funds, the CDU / CSU bloc and the FDP pro businesses have focused more on reducing red tape and encouraging private investment.

For its part, the FDP supports ‘gigabit vouchers’, which could mean a benefit for the telecommunications industry, including companies such as Deutsche Telekom AG and Vodafone Group Plc, according to Barclays, while Societe Generale sees more small German companies in the SDAX and MSCI Germany Small Cap Indices benefiting from the parties’ investment plans.

All the latest polls show that the SPD is ahead. A center-left-led government might be less attached to the draconian fiscal discipline of the CDU / CSU-led coalition, which could translate into gains for southern European stock markets.

A government led by Olaf Scholz of the SPD “would probably be rather lenient on public finances elsewhere in Europe as well,” according to Wolfgang Bauer, fixed income fund manager at M&G Investments.

Nonetheless, the constitutional provisions and the potential need for the SPD to benefit from the support of the right to form a government means that its ability to adopt a more lax approach to spending is likely to be constrained.

The party would also be more in favor of deeper integration into the European Union, which “could give new impetus to peripheral European risk assets,” Bauer said. Investors wishing to bet on further integration could take a long position on the Italian FTSE MIB index, according to Societe Generale.

One outcome that could pave the way for more fiscal stimulus, both in Germany and in the EU, is a potential link between the SPD, the Greens and the Left Party. Along with higher spending, this could lead to higher taxes, more regulation and potentially higher inflation, said Emmanuel Cau, head of European equity strategy at Barclays.

“Tail risk is really a left coalition, which is likely to be seen as a shift from a market perspective,” he said. “This is something to watch out for because obviously you might have the biggest implications in terms of the fixed income markets, in terms of the broader European equity markets, in the periphery in particular.”

Such a scenario would be a blow to the German auto industry, according to Barclays, if there were a significant increase in the minimum wage, much stricter climate policies and a large increase in taxes.

Berenberg analysts see a left coalition as a risk with a 20% chance. “Such an alliance could hurt trend growth over time through reform reversals and a wave of regulations,” analysts including Jonathan Stubbs wrote in a note to clients.

Societe Generale is more relaxed, stressing that a higher minimum wage would support German domestic consumption values. “The smaller coalition partners will have to make concessions to join and will not be able to change policies significantly,” Kaloyan said.

Whether or not the anti-capitalist left-wing party joins the next coalition or not, the aviation industry risks facing headwinds after the elections.

“Short-haul travel in general will face the most difficult political outcomes” in all party combinations in the next government, wrote analysts at Bernstein, including Daniel Roeska, noting that easyJet Plc, Ryanair Holdings Plc and Wizz Air Holdings Plc are negatively exposed to the vote. .

Barclays are more optimistic about German real estate, like Vonovia SE. “While the SPD and the Greens want to limit rent increases for current tenants by tying rent increases to inflation and limiting landlord modernization efforts, neither side is actively campaigning for a freeze on rent. nationwide rents, ”wrote analyst Sander Bunck.

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