27.05.2019 – Special report. Calm reactions in the equity and currency markets after the European elections. What deceptive calm. Long-term investors should certainly think about the euro and German equities. In the Federal Republic a change of policy has become entrenched, which a large part of Europe will probably not take part in. We analyse who loses and who wins.
Policy change ahead
Slight increase in the DAX, hardly any movement in the euro. So apparently everything went well again after the European elections. As was to be expected, commentators in the German press noted the slight increase in the DAX on Monday in the absence of an earthquake in the European elections. A poor explanation: Right-wing parties did not celebrate any landslide victories, but nevertheless made strong gains throughout Europe.
In addition, the media – consciously or unconsciously – overlooked the actual message of the European elections: Germany is turning green, there’s no way around it if things go on like this. For it is not only the election result of the Greens of a good 20 percent that is an important decision, even if the turnout was low compared to the Bundestag elections. But above all the preference of the boys for the Greens is a warning signal for the stock market: According to analyses by german publiv TV channels ARD and ZDF, 29 percent of the 19- to 29-year-olds vote green. Among the even younger, the proportion is likely to be even higher.
The swan song for the DAX and German core industries?
German industry must therefore fear massive disruptions in the future. A turn to the left under the green flag could simply mean the end for many DAX companies, for example in the energy, steel or automotive sectors. This would mean that these sectors in particular and the DAX in general would be short candidates. Who is to finance the deficits of the European debt countries in the future, if this scenario occurs, is in the stars.
German special route
Also because Germany has taken a special path, we must fear for the preservation of the euro. Here in Germany, the climate catastrophe that is supposedly imminent is the big issue. The Greens, on the other hand, are simply not to be found in most other countries. Instead, the preservation of national identity, the well-being of the domestic economy and the expansion of Fortress Europe in countries such as France, Great Britain, Italy, Belgium, the Czech Republic, Slovakia, Poland, Hungary and Austria are the top issues.
Real politic abroad
It is quite possible that these countries will soon say goodbye to the euro because they have had enough of open borders and the permanent zero interest rate of the European Central Bank, which is eating up savings. Long-term investors should therefore take a closer look at government bonds and the stock markets of countries with strong Eurosceptic factions. This is where interesting new national champions could emerge. Indian and Chinese companies will also fill the gap that Germany may or may not leave in the automotive, chemical, weapons production and power plant construction sectors.
Opportunity for alternative high-tech
However, the presumed eco-turn in German industry will probably also produce new champions. You should take a look at the drone industry, for example – if driving bans are imposed, parcels will probably be delivered by air in future. First attempts with air taxis – nothing other than gigantic drones – are also promising. Perhaps the German car industry will achieve a breakthrough in electric propulsion and assume a leading global role. Or at some point the solar industry will be able to store electricity.
Bitcoin attracts strongly
Perhaps the actual message of the European elections in Germany is the reason why investors are currently looking for investments elsewhere than in Europe. On Monday morning, the Bitcoin in Asian trading rose to a twelve-month high. The crypto currency rose to 8,800 dollars, the market capitalisation is now around 260 billion dollars.
Let’s wait and see whether the change of policy in Germany is solidifying, whether the rest of Europe is pulling out and whether our analysis is correct. Be ready.
The Bernstein Bank wishes you every success!
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