Markets, Merkel, and more
- The German elections are a reminder that anti-establishment politics have not gone away. The two main anti-establishment parties won almost 22% of the German vote. The anti-establishment vote was rural, older, and lower-skilled. This is similar to votes in the UK, US, Netherlands and (partially) France. In former East Germany, the AfD is now the second-largest party.
- This trend creates two problems for investors. Anti-establishment politics is tribal. The anti-establishment tribe is not a group that many investors belong to. The lack of personal contact with anti-establishment politics means investors tend to underestimate its significance. Anti-establishment parties also draw support from people who do not normally vote. This was the case in Germany. This reduces opinion poll precision. New voters' intentions are difficult to capture. There is a higher margin of error in predicting elections.
- Uncertainty matters. Elections are due in Austria, Japan and Italy. However, while anti-establishment parties may influence political debate, no major country has successfully run an anti-establishment policy program. It is also important to remember that foreign investors may overreact to political risk. Local investors react more calmly. If an asset market is owned by foreign investors, political risk should be a bigger driver of prices.