Few things roil the markets like
political uncertainty and potential upheaval. With a slate of impending
European elections where the outcome is anything but assured, institutional
investors and asset managers may be looking for ways to play the political
uncertainty hanging over Europe.
It’s shaping out to be an eventful
2017 in Europe, as the Netherlands,
France, and Germany will hold
national elections in which populist parties, and anti-European Union
candidates, hope to take power and upset the natural order of business and politics.
The surprise yes vote for Brexit,
and the election of Donald Trump as U.S.
president has buoyed the confidence of populist parties throughout Europe. As a result, investors and market watchers are
bracing themselves for the possibility of more of the unexpected.
The Netherlands will kick it off with a
general election on March 15. Geert Wilders, leader of the far-right Party for
Freedom (PVV), has pledged to leave the E.U. Polls currently show Wilders
leading all other candidates, and with twice as many votes as garnered during the
last election in 2012.
However, it’s not likely the PVV
will reach a majority, and most Dutch political parties have said they won’t
form a coalition with them. Polls indicate that at least four parties will be
needed to form a governing coalition.
Dutch bank Rabobank suggested in a
note last week that the investment play for the Netherlands election is to go long
on Dutch bonds, reports CNBC.
“In underlining the threat
populism poses as regards euro zone integrity, strong support for the PVV …
stands to underpin core bonds including, paradoxically, DSLs (Dutch State Loans),”
However, the bank cautioned that “several factors could
contribute to a further rise of Eurosceptic parties in the Netherlands.”
While Rabobank suggested going long on Dutch bonds, it
wasn’t as confident about French bonds, also known as Obligations Assimilables
France will hold its first round of
elections April 23, and the second round on May 7. The two main candidates for
president are Marine Le Pen of the right wing National Front party, and The
Republican’s Francois Fillon. Le Pen has promised that if elected he’d hold a Brexit-style
referendum for France to leave E.U. Polls have Fillon with a narrow lead over
Le Pen, but suggest that Le Pen will make it to the second round of voting in
"Go long DSLs vs. OATs,” said the bank. “The read
across is likely to be more negative for OATs both as Le Pen's fortunes are
reassessed, and as the outlook for the euro zone cohesion is challenged.”
Germany won’t be holding its elections until September when
Chancellor Angela Merkel, who leads the Christian Democratic Union of Germany
party (CDU), will run for a fourth term. Merkel has faced a backlash over her
open-door migrant policy, and is up against a surging Alternative for Germany party
(AfD), which also supports leaving the E.U. A defeat for Merkel could mean a
referendum on E.U. membership, and strict border controls.
Although the AfD isn’t expected to unseat Merkel, German
public sentiment could change based on the outcomes of the French and Dutch
elections. Last week, Germany’s
Economy Minister Sigmar Gabriel said the E.U. could disintegrate if populists
win in France or the Netherlands.
"The French presidential elections this spring are
bitter fateful elections for Europe,"
Gabriel told the Bundestag lower house of parliament. "If enemies of Europe manage again in
the Netherlands or in France
to get results, then we face the threat that the largest civilization project
of the 20th century, namely the European Union, could fall apart." —Michael Katz
Related Link: The Post-Brexit Market