Election Set to Boost German Shares
With only a few weeks to go before the elections on September 18th, recent opinion polls show the incumbent Social Democratic Party (SDP) lagging well behind the conservative opposition party, the Christian Democratic Union (CDU). Despite a recent decline in unemployment, joblessness under Gerhard Schroeder remains close to a post-war record and with economic growth faltering, Germany could soon be greeting its first female chancellor, CDU leader, Angela Merkel.
We anticipate a CDU victory in September and have been looking at stocks that are likely to benefit. For example, the CDU has said it plans to extend the operation of the country’s nuclear power stations, which were due to be phased out, increasing pressure on the country’s already stretched power generating capacity. Prolonging the life of nuclear plants would benefit utility groups like E.ON and RWE, increasing their combined market value by €8 billion, according to some estimates.
We’d also expect a new CDU government to be more supportive of the defence industry, which would help companies such as Rheinmetall. While there could be less spending on defence by the government itself, we would expect more lenient policies governing the exports of German defence groups. A further boost could come from a détente in US-German relations after Schroeder’s government fell out with the Bush administration - a new right of centre government should share more common ground.
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Also, in the event of a CDU victory we’d expect Merkel to push through some major tax reforms, in the form of lower corporation tax and higher VAT. Companies relying on domestic earnings, such as Deutsche Post, will benefit from this change.
By Roger Guy, fund manager at Gartmore Investment Managemen
