Angela Merkel has won a terrific victory for the Christian Democratic Union/Christian Social Union (CDU/CSU), securing an historic third term in power. However, her previous coalition partners, the Free Democratic Party (FDP) failed to reach the 5% threshold level to be represented in the Bundestag. This leaves Chancellor Merkel five seats short of an overall majority.
The key question now is what happens next? It is almost certain that Merkel will have to form a coalition with the Social Democratic Party (SPD). The last time this happened, in 2005, the SPD ended up losing votes in the following election, so we do anticipate some uncertainty over the discussions. We expect to see a marginal shift to the left by the CDU in order to accommodate the SPD, but given that we are talking about a very narrow difference in policies, this is likely to be more about taxation rates in Germany and spending plans.
Ultimately, we expect to see very little change. Luckily, we have seen that European economies are beginning to recover, which means that the focus should shift away from politics to the reality of what can be done to keep the recovery going and getting unemployment down.
The implications for us, in terms of the portfolio for which I am responsible, are pretty minimal. While European economic data has been showing some improvement, we nevertheless remain in a period of low growth. As such, we will continue to favour those companies that have the ability to grow better than the market can, in what we think is going to remain a pretty uncertain environment for some time to come.
Tim Stevenson, Manager of the Henderson Horizon Pan European Equity Fund
These are fund manager views at the time of writing and may differ from those of other Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.
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