What the German Elections Mean for the Investor Community

It’s that time again. After the excitement of Brexit, the U.K. General Elections, the U.S. Presidential Election, and the elections in France, it’s Germany’s turn to pick new leadership. Or, in the more likely case in Germany, send Angela Merkel back in for another term.

While the German election is unlikely to produce the shocking results that were seen elsewhere, an election  always brings a certain element of uncertainty that any investor needs to account for in their investment strategy.

The upcoming election in Germany, scheduled for September 24th, pits incumbent Angela Merkel of the Christian Democratic Union against her main challenger, Martin Schulz from the Social Democratic Party. Merkel has taken a strong lead in the polls recently, sitting anywhere from 15-18 points ahead. A lot can still change in the final weeks before the election, however, and previous votes around the world have shown just how precarious polling can be.

One potential wrinkle in the upcoming election is the potential performance of the far-right Alternative fur Deutschland (AfD) party. With calls for stricter border controls and immigration policies, the party is tapping into some of the same global trends that brought surprise results in other countries such as the U.K. and U.S. Regardless of the AfP’s performance in the election, the issues they are raising are certain to persist and affect the decisions of any future government.

What is almost certain though, is that Merkel will need to form a coalition. So there is a good chance that Merkel and Schulz will be forming a government together, and both of their positions will be taken into account in the running of the country and the subsequent effects for the German economy and international markets. While Merkel’s strong chances for reelection and the overall positive outlook for the German economy may bode well for the DAX, there are nevertheless a number of challenges looming on the horizon.

One obstacle is the escalating effects of the automotive emissions scandal which has embroiled car manufactures there and has shaken confidence in German regulators. An additional challenge is the potential sale of the German government’s stake in Commerzbank, which is currently being considered to take place after the election.

These, and many more policy decisions that the new government will take, could stand to break the current trend in the DAX. Of course the DAX is just one opportunity for investors – the election is bound to have an effect on both the EUR/USD and EUR/GBP exchange rates.

Currently, analysts are highlighting the emerging renewed strength of French-German relations underpinning potential growth for the Euro. When it comes to the Pound, much hinges on what steps the U.K. takes in regards to Brexit and how the new German government will react to them.

Yet, no matter what the polls and pundits say, recent examples show nothing is certain until German voters cast their ballots. That uncertainty can provide both risks and opportunities for smart investors who have been carefully watching the markets.

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