These 2017 Elections Could Move the Markets

3 European Elections to Watch in 2017

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The United Kingdom’s ‘Brexit’ vote and the United States’ election of President Donald Trump has marked an important turning point in global populist sentiment. The rise of the Islamic State of Iraq and the Levant (known as ISIS) and the Syrian refugee crisis sparked concerns over immigration policies while innovations in clean energy and robotics has caused concerns over middle-class jobs. And, populist politicians have risen promising to solve the problems.

In this article, we will look at important upcoming elections for international investors to watch in 2017 around the world and the outcomes that could move the market.

Netherlands March

The Netherlands held the first major European election of 2017 on March 15. Prime Minister Mark Rutte’s center-right party experienced a resounding win over the Party for Freedom’s Geert Wilders a populist candidate that’s comparable in many ways to Donald Trump. Rutte’s party currently has 33 seats in the 150-seat legislature compared to 20 seats for Wilders’ party and 19 seats a piece for two other political parties.

European stocks moved higher following the election by around 1 percent, but the U.S. Federal Reserve’s interest rate decision occurred on the same day, so it’s difficult to say what was responsible for the increase in stocks and the euro valuation. The outcome also bodes well for traditional candidates in French and German elections coming up during the second quarter and third quarter of 2017 given the similarities in demographics.

France April and June

France’s elections will take place between April and June for both the presidency and parliament. Unlike the United States, French presidential elections have several rounds in a direct election where every vote carries equal weight. Candidates that receive more than 50 percent of the vote during the first round (held on April 23) will be elected, but if no candidates receive that many votes, a second round is held between the top two candidates (held on May 7).

International investors are most concerned over the National Front’s Marine Le Pen, who has promised to hold a referendum on taking France out of the euro. Simply put, this move could destabilize the entire Eurozone given that France plays such a large role. The front-runner is the En March!’s Emmanuel Macron who is more of a centrist candidate a safer bet in the eyes of international investors given his status quo approach.

Germany September

Germany’s elections will take place on September 24 between incumbent Angela Merkel of the Christian Social Union (CSU), Martin Schulz of the German Social Democratic (SPD), and Sahra Wagenknecht and Dietmar Bartsch of the Left party. Unlike France, Germany’s elections don’t involve a run-off or multiple rounds, but voters can vote for both one of the candidates in the single-member constituency and one of the party list in the multi-member constituency.

International investors are most concerned with fringe candidates like Frauke Petry of the Alternatives for Germany party. While the CSU and SPD candidates enjoy a healthy lead in the polls as of March, the United States’ President election showed just how susceptible these trends are to change over a short period of time.

Both CSU and SPD candidates are centrist enough to avoid major political risks.

How to Prepare for Elections

Many experts advise passive investors to regularly contribute to their portfolios over time without worrying about market timing or other factors. By doing so, investors can ‘average in’ over time and experience even gains over long periods of time. Active investors often prefer to try to time the market or at least hedge their bets during times of uncertainty, such as these upcoming elections that could introduce volatility.

Active investors may want to consider avoiding European stocks during these election cycles and keeping an eye on the long-term impact on the outcomes.

For instance, if France’s Le Pen is successful, it could prompt a referendum for the country to leave the European Union, which could ultimately cause a breakup of the common area. These kinds of events could throw financial markets into chaos until the logistic are sorted and more certainty is restored.

Investors can also hedge their bets by purchasing puts on European indexes that offset some or all of the losses that would be sustained if an unexpected outcome occurs. For example, investors could purchase puts on the SPDR EURO STOXX 50 ETF (FEZ), which is composed of the 50 largest public companies in the European Union.

The Bottom Line

There are several upcoming elections across Europe that could have a significant impact on global markets. International investors should note that these elections could introduce periods of market volatility, while being cognizant that any unexpected outcomes could spell trouble over the longer term. Populism has become an important trend in late-2016 that’s likely to play out throughout European elections in 2017 and beyond.