LIVE MARKETS-German election: get Kenya, buy domestic

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GERMAN ELECTION: GET KENYA BUY DOMESTIC

Germany goes to the ballot box later this month, an important election that would probably be near the top of investors' minds, if it weren't for tariffs and the odd moment of AI angst.

Goldman have a recent note out with an interesting chart that shows good correlation between the performance of a basket of domestically focused German stocks and polling of a "Kenya coalition" - so named because the African nation's flag matches the colours of its parties: the traditional parties of the left and right the CSU/CDU (black) SPD (red) and the Greens (guess).

German domestic names have underperformed recently, and Goldman's domestically focused basket is up 14% since the start of 2024, compared to 28% for the internationally focused blue-chip DAX index. .GDAXI

Politics are partly to blame, and the domestic basket reached its recent nadir in August last year, when the "Kenya coalition" was collectively only at around 50% of votes in the polls. As the polls have changed, it has since rebounded.

The reason isn't really to do with those parties, but because such a coalition excludes the liberal centre right FDP, which is strictly against more fiscal spending - a view that led directly to the election.

"If a“Kenya coalition” gains traction in the polls, it could signal increased fiscal support, positively impacting the German domestic basket’s performance," they say.

"Conversely, strong polling for the FDP, which opposes fiscal expansion, could dampen the outlook for the German Domestic basket."

They also make a broader point about the election, Germany's constitutional 'debt break' and markets.

"Beyond the direct impact of additional government support, the indirect impact of a change in rhetoric on Europe’s growth narrative could be even more important," Goldman writes.

"The signal sent by implementing fiscal reforms in the largest European economy, historically known for its frugality, could significantly improve sentiment, which could encourage increased spending in the region and boost productivity."

(Alun John)

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