What the Alternative for Germany Party Means for Investors

A Look at Germany's Leading Nationalist Political Party

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Britain’s surprising decision to leave the European Union and Donald Trump’s unexpected victory in the United States’ Presidential election has underscored the growing prevalence of nationalism around the world. For investors, these nationalist policies risk unwinding progress made over the past decade in eliminating trade barriers and encouraging global trade in favor of protected domestic industries that could benefit from higher tariffs.

In this article, we will look at the Alternative for Germany party and the potential impact that it could have on international markets if successful in upcoming elections, as well as the likelihood of the party actually winning the upcoming federal elections in September 2017.

What Is Alternative for Germany?

The Alternative for Germany is a Eurosceptic political party that was founded as a center-right conservative party for the middle class. In the beginning, the party supported Germany’s membership in the European Union but opposed the Eurozone and bailouts. The party instead advocated for a Swiss-like direct democracy and a dissolution of the Eurozone and the shared currency that has caused financial stresses in the region. In addition to its nationalist stance, the party has been a long-time opponent to same-sex marriages and open immigration policies.

Since it was founded in 2013, the party evolved to become far more nationalist to the point of repudiating of the country’s ‘culture of shame’ with regards to its Nazi past.

These nationalist tendencies were amplified during the Syrian immigration crisis that has dramatically shifted sentiments about immigration and caused a backlash against Angela Merkel and the established Christian Democratic Union (CDU) political party.

The party’s popularity has grown from 4.7 percent of the votes in 2013 to gaining representation in 13 of 16 German state parliaments.

More recently, the controversial political party has been polling between 9 percent and 10 percent leading up to the 2017 federal elections. These strong polling numbers have led to concerns that it could capture a meaningful percentage of votes, particularly given the polling upsets in the United States and Britain.

What’s the Likelihood of an AfD Victory?

Germany’s federal elections will take place on September 24, 2017, when voters will decide whether to reelect Chancellor Angela Merkel to a fourth term. Earlier in 2017, it seemed unlikely that Ms. Merkel would succeed in winning another term due to her controversial stance on immigration. In particular, terrorist incidents involving Syrian and other immigrants intensified the protest against the country’s very open policies.

These sentiments changed in May 2017 when Angela Merkel’s CDU unexpectedly won elections in the western state of North Rhine-Westphalia — a hometown for the Social Democrats (SPD). The AfD party captured just 7.4 percent of the votes compared to 39.1 percent for the CDU, 26.3 percent for the SPD, and 12.6 percent for the Free Democrats. Following these elections, the CDU is more confident in their ability to win federal elections despite anti-immigration sentiments.

While the Alternative for Germany party is not expected to win during the 2017 federal election with the Christian Democratic Union (CDU) and Social Democrat Party (SPD) leading the polls at 36 percent and 27 percent, as of May 2017, Britain’s ‘Brexit’ vote and the unexpected victory of Donald Trump in the United States Presidential election has cast serious doubts on poll figures and voters can no longer take anything for granted.

What Would Happen If AfD Won?

The Alternative for Germany party would likely have a negative long-term impact on Germany’s economy if successful in September.

The party supports Germany’s departure from the European Union, which would almost certainly cause the political system to collapse. After all, Germany is the single largest economy in the European Union and contributes significantly to its operation and financial well-being.

A dissolution of the European Union could cause widespread crisis throughout the entire region on a level much greater than the ‘Brexit’ or smaller departures.

If unsuccessful in leaving the EU, the AfD could still have a negative impact on the country’s economy. Restrictions on immigration could limit the country’s talent pool, while protectionism could hurt its export-dependent economy.

The upshot is that many of these actions would require the party to also win control over the Bundestag — the country’s legislative body.

The Bottom Line

The Alternative for Germany party is a Eurosceptic nationalist party founded on opposition to the European Union and Eurozone. While the party remains relatively small in recent polls, the U.S. and British elections have shown the ability for fringe candidates to rise to power. If successful, the AfD would likely have a negative impact on international investors given their tendencies toward protectionism and the possibility of leaving the European Union.

International investors should keep an eye on the upcoming elections in September 2017 and adjust their portfolios as necessary to hedge against potential political risks for both Germany and the wider European Union. By doing so, investors can reduce risk and maximize risk-adjusted returns.