Narrowest of wins for Schroeder
Stocks steady, yet investors wary of 'more of the same'
By Emily Church, CBS.MarketWatch.com
Last Update: 5:19 AM ET Sept. 23, 2002
LONDON (CBS.MW) - German stocks dropped to a five and a half year low on Monday after the closest election in post-war German history returned Social Democrat Chancellor Gerhard Schroeder to power.
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Company: Deutsche Telekom Ag Add
Company: Allianz Aktiengesellschaft Add
Schroeder was re-elected with a tiny, 11-seat margin on the strength of gains for his junior coalition partner, the Greens. The two main parties each received 38.5 percent of the vote on Sunday, according to the preliminary results early Monday.
The DAX 30 (DE:1876534: news, chart, profile) dropped below the 3,000 mark, a loss of close to 100 points and down to a level that is lower than when Schroeder first became chancellor in 1998. The index is down some 30 percent since the start of the year.
Strategists said that many investors in German stocks were likely waiting out the inevitable political horse-trading in Berlin this week or longer before taking strong positions in the market.
Yet the prospect of political gridlock in Europe's largest economy is rising, they said.
The close results "are fairly negative for the German reform process. It will be very difficult to get anything through the parliament," said Rolf Elgeti, a strategist at Commerzbank.
"The conservatives could play the card of torpedoing everything that the government tries to do to force new elections and that is the worst case for reform," he said.
The second concern in the markets is that the slim margin of victory for Schroeder's Social Democrats (SPD) and the Greens is likely to make reforms to the country's labor market difficult. The SPD return could put privatizations on the back burner as well.
"Investors are really sceptical about structural change in Germany," sad Anais Faraj, strategist for Normura Securities in London. The fear is that there will be "no change until we hear otherwise," he said.
In his first term, Schroeder's government proved unable to bring the jobless numbers down from around 9.6 percent this year, or 4 million people. Growth in Germany has recently started to slow as well, as the small recovery earlier this year stalls.
To be sure, much of the slowdown is related to the global downturn and out of Germany's hands. The euro's gains vs. the dollar this year are also a weight for Germany, which is more export-reliant on the U.S. than other European Union economies.
Yet a big theme for recent investors in Germany has been the structural reforms that used tax reforms to spur an unwinding of large industrial cross-share holdings, for one. Also, pro-business groups in Germany have been pushing for more flexibility in the labor market.
"Markets will be very disappointed that (Christian Democratic leader Edmund) Stoiber never cut the biscuit," David Buik, strategist at London spread-betting firm Cantor Index said. "It is difficult to see what Schroeder brings to Germany's economic plight."
The results could well mean that the state will be less inclined to sell its stakes in companies such as Deutsche Post, Deutsche Telekom (DT: news, chart, profile) and insurer Allianz (AZ: news, chart, profile), he said.
The better news for stocks like DT and Deutsche Post is that overhang in the stocks related to expectations that a conservative government would sell the stocks has lifted, Elgeti said.
The preliminary results gave the SPD and Greens 47.1 percent of the vote, representing 306 seats in the Bundestag and the CDU and partner liberal Free Democrats won 45.9 percent, or 295 seats, the BBC reported.
The pro-environmental and leftwing Greens had their best general election result at 8.6 percent. The Social Democrats lost a little ground to 38.5 percent - the same pulled by conservatives Christian Democrats (CDU).
Emily Church is London bureau chief of CBS.MarketWatch.com.
Stocks steady, yet investors wary of 'more of the same'
By Emily Church, CBS.MarketWatch.com
Last Update: 5:19 AM ET Sept. 23, 2002
LONDON (CBS.MW) - German stocks dropped to a five and a half year low on Monday after the closest election in post-war German history returned Social Democrat Chancellor Gerhard Schroeder to power.
TRACK THESE TOPICS
Company: Deutsche Telekom Ag Add
Company: Allianz Aktiengesellschaft Add
Schroeder was re-elected with a tiny, 11-seat margin on the strength of gains for his junior coalition partner, the Greens. The two main parties each received 38.5 percent of the vote on Sunday, according to the preliminary results early Monday.
The DAX 30 (DE:1876534: news, chart, profile) dropped below the 3,000 mark, a loss of close to 100 points and down to a level that is lower than when Schroeder first became chancellor in 1998. The index is down some 30 percent since the start of the year.
Strategists said that many investors in German stocks were likely waiting out the inevitable political horse-trading in Berlin this week or longer before taking strong positions in the market.
Yet the prospect of political gridlock in Europe's largest economy is rising, they said.
The close results "are fairly negative for the German reform process. It will be very difficult to get anything through the parliament," said Rolf Elgeti, a strategist at Commerzbank.
"The conservatives could play the card of torpedoing everything that the government tries to do to force new elections and that is the worst case for reform," he said.
The second concern in the markets is that the slim margin of victory for Schroeder's Social Democrats (SPD) and the Greens is likely to make reforms to the country's labor market difficult. The SPD return could put privatizations on the back burner as well.
"Investors are really sceptical about structural change in Germany," sad Anais Faraj, strategist for Normura Securities in London. The fear is that there will be "no change until we hear otherwise," he said.
In his first term, Schroeder's government proved unable to bring the jobless numbers down from around 9.6 percent this year, or 4 million people. Growth in Germany has recently started to slow as well, as the small recovery earlier this year stalls.
To be sure, much of the slowdown is related to the global downturn and out of Germany's hands. The euro's gains vs. the dollar this year are also a weight for Germany, which is more export-reliant on the U.S. than other European Union economies.
Yet a big theme for recent investors in Germany has been the structural reforms that used tax reforms to spur an unwinding of large industrial cross-share holdings, for one. Also, pro-business groups in Germany have been pushing for more flexibility in the labor market.
"Markets will be very disappointed that (Christian Democratic leader Edmund) Stoiber never cut the biscuit," David Buik, strategist at London spread-betting firm Cantor Index said. "It is difficult to see what Schroeder brings to Germany's economic plight."
The results could well mean that the state will be less inclined to sell its stakes in companies such as Deutsche Post, Deutsche Telekom (DT: news, chart, profile) and insurer Allianz (AZ: news, chart, profile), he said.
The better news for stocks like DT and Deutsche Post is that overhang in the stocks related to expectations that a conservative government would sell the stocks has lifted, Elgeti said.
The preliminary results gave the SPD and Greens 47.1 percent of the vote, representing 306 seats in the Bundestag and the CDU and partner liberal Free Democrats won 45.9 percent, or 295 seats, the BBC reported.
The pro-environmental and leftwing Greens had their best general election result at 8.6 percent. The Social Democrats lost a little ground to 38.5 percent - the same pulled by conservatives Christian Democrats (CDU).
Emily Church is London bureau chief of CBS.MarketWatch.com.
