Dynamic Solutions (Natixis IM) on consequences European Elections

28 mei 2019

The good news is that populist fears were overdone. Broadly speaking, Euroskeptic parties didn’t sweep the elections, and maintained roughly the same weight as in 2014 (about 28%). This was not the case in France and Italy, where the National Rally and La Liga gained meaningfully. Mrs Merkel’s coalition got the majority, but less resoundingly than expected. Overall, the biggest winners were the Liberals and the Greens.

This morning, markets appear relieved that populists didn’t gain more control, as this implies a broad continuation of current policies. Some questions are likely to arise around early elections in Italy given La Liga’s strength, an earlier-than-expected transition to Mrs Merkel’s successor, and how much weakness to expect domestically for Macron since his party finished in second place behind the nationalist party.

With UK participation extremely low, results don’t add much visibility to Brexit, though “Remainers” did better from voters who actually showed up. This might increase chances of a second referendum, but this isn’t our base case scenario for now. Sterling hasn’t benefitted, given the uncertainty with Brexit remains centred around Mrs May’s successor.

Overall, not much is likely to change. The Green parties’ success could imply further environmental measures. Mrs Merkel and Mr Macron’s disappointing performances do not imply a strong integration mandate. But in terms of investments, not much will change. We continue to look for a stabilisation in Q2 European growth, which should bring some support to European assets, as the status quo can be seen as a mild positive surprise. Nonetheless, ongoing Brexit uncertainty, especially in light of a new PM in the coming weeks, will keep many investors at bay.