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Swiss German advisers respond to the German election

The results of the German election are out, and Swiss wealth managers explain what they means for their portfolios.

Germany went to the polls this Sunday, with the markets anticipating few surprises. As the final results came through, the country started preparing for new coalition, and European markets and the euro jumped on the news.

Citywire Switzerland canvassed the opinions of six allocation heads from Swiss German wealth management firms, asking who might be forming the new coalition, what the success of the AfD means, and how they have positioned their portfolios in light of the news.

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Germany went to the polls this Sunday, with the markets anticipating few surprises. As the final results came through, the country started preparing for new coalition, and European markets and the euro jumped on the news.

Citywire Switzerland canvassed the opinions of six allocation heads from Swiss German wealth management firms, asking who might be forming the new coalition, what the success of the AfD means, and how they have positioned their portfolios in light of the news.

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Pascal Boeuf

Head of equities at Woodman Asset Management

Angela Merkel's party has lost slightly more seats than anticipated. Still, the government is going to be formed by her party and the most probable coalition partners for the CDU/CSU are the FDP and the Green Party. The coalition building will be a lengthy process, especially as the Greens have policies that differ from other parties. AfD, which surprisingly gained quite a lot of ground with almost 14%, will be in opposition alongside the SPD.

We think the coalition will be rather industry friendly. However, several sectors will come under pressure in the short term. This could include the German automobile sector, as the Green Party might take a more aggressive stance on diesel. We don’t invest in traditional car makers and prefer electric vehicle manufacturers.

We don't see any impact of the elections on our clients because we don't expect a real shift in the policy from the new government. We did fairly little compared with previous major political events such as the Italian referendum and the French elections. We have been overweight the euro area since the end of last year and Germany in particular since the beginning of 2017 and we didn’t change that.

Our exposure to the German market it currently 17%. We mainly invest in German small and mid caps, including an industrial name, Noma, a real estate company, Deutsche Wohnen, and a silicon producer, Wacker Chemie.

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Roger Ganz

Head of asset management at Clarus Capital

Angela Merkel's pyrrhic victory will add some more uncertainty to markets but will have only a limited impact. The coalition formation will be challenging, with the most likely outcome a three-party coalition with the liberal FDP and the Greens. With only France left as a supporter of stronger integration of the EU, the negotiations between the UK and the EU, and the necessary reforms of the EU seem to become more complex. We therefore see a weakening of the euro and favour European export-oriented equities.

Diversification is key. European investors should slightly reduce their home bias, as uncertainty in the euro could heat up again. They should mainly focus on fundamental data, as this is drawing a strong economic picture with expected earnings improvement. As a consequence, central banks are following their roadmaps towards a normalisation of monetary policy.

We haven’t changed our allocation. We are slightly underweight equities in general due to high valuation of risky assets and we remain cautious for the upcoming weeks.

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Mathias Heim

CIO at Bellecapital

In our opinion there will be little to no impact on financial markets from the German elections. Recent history tells a clear story: ignore politics when investing in developed markets. Hence we did not make any change to our asset allocation prior to the election, nor will we act on the outcome.

We allocate 10% of our equity exposure to German listed companies and invest directly in such names like E.On, Bayer, BASF and others. We also hold a convertible bond of Fresenius.

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Peter Ahluwalia

CIO at Swisspartners

For the equity markets the election result is likely to be positive, as stability continues in the form of Merkel being re-elected. The high showing by the AfD will likely cap upside for the euro, especially versus the US dollar, and will probably cause it to weaken, which should in turn help push European stocks higher.

There will likely be a vacuum for a while as talks with coalition partners start. I wouldn't rule out any possibilities, even though the SPD say they want to be in opposition. A grand coalition would be the best scenario and is possible if they offer an enhanced deal to SPD. Otherwise a Jamaica coalition (many parties including the Greens) could work, but will take time. It could take a while to form a government but as we have seen in the Netherlands this is not the end of the world.

We increased our equity allocation by 1.5% for balanced and dynamic mandates and increased our EUR/USD hedges ahead of the election result.

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Pascal Bersier

Director at Brevalia

With the German parliamentary elections, the existing problems were once again pushed into the background. However, the situation didn’t worsen significantly either.

For AfD it was a massive leap. However, it is nothing new. In Europe, we generally see a slip to the right. I personally think that the upswing of extreme right or left movements doesn’t make problem-solving more effective.

We didn’t make any changes to our portfolios before or after the elections. Generally, we invest in the German equity market via indexes, as we consider it to be very efficient and we don’t see much added value in direct stock picking versus the risks taken. At the moment we are having a big discussion with clients about the three pillar pension system in Switzerland, where the first two pillars, state pension and occupational retirement planning, are being steered by the political parties.

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Christian Tury

CIO at FINAD, Financial Advisors

Ahead of the election we reduced our positions in eurozone peripheral bonds, recognizing the historically compressed spreads versus German bunds, and reduced our euro exposure slightly in favor of the US dollar, Swiss Francs and British pound. At the same time we increased our exposure in European cyclicals – especially in the German equity market.

We don’t see any notable - for better or worse - impact on our clients from the German election result. Referring to Macron: we believe Europe represents the solution rather than the problem to German political woes.

Looking at the German election results we can see how a bit of uncertainty has crept back into the European integration process – an undertaking that looked to gain steam with the pro-European election results in other European countries earlier this year.

Some of the aspirations that German-French alliance could have achieved for Europe are now probably diminished. The euro might come under pressure in the short run, given its already stretched rally since mid-year, but should still do well over the coming quarters based on an improvement in economic fundamentals like higher growth, lower unemployment and slightly accelerating inflation.

Equities as well as government bond yields will hold on to their recent gains and reach this year's highs. We expect fundamental improvements to dominate the market sentiment over the next months.

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