VT Tyndall Global Select Fund


The reign of Angela Merkel is due to come to an end next week. Despite the era of prosperity and stability that her chancellorship has overseen, with her no-nonsense approach and fiscal prudence, it appears that her Christian Democratic Union (CDU) Party and its Bavarian sister party the Christian Social Union (CSU) may face their first period out of office for over 16 years.


If the current polls are to be believed, not only will the Social Democratic Party (SDP) come top in the General Election, but also for the first time in the German electoral history, for any party to take power a three-way coalition will be required; historically the two major parties commanded 70-80% of the votes. Unlike the UK, the winning party does not get the automatic right to try and form a government, so after the election, we expect to see much bartering, between all the parties, which will make decisions surrounding important areas such as fiscal and tax policy, and European integration much more complicated and compromises will have to be made; the current positions of the key political parties are outlined later in this article.

As all the major parties have ruled out working with Alternative für Deutschland (AfD), and Olaf Scholz has declared that Die Linke is “not fit for government”, owing to its unwillingness to commit to NATO and solid public finances, the government is likely to be formed from the arrangements and concessions that can be agreed between the SPD, CDU/CSU, Greens and the Free Democratic Party (FDP).

Although there are other combinations possible and allowing for a margin of error in the polls, the most likely combinations are known as ‘Jamaica’, ‘Traffic Light’, ‘German’ and ‘Kenya’ owning to the party colours in the combination.


Given the bad blood in the current CDU and SPD coalition a conservative ‘German’ coalition is unlikely, and the CDU is unlikely to agree to being a junior partner to the SPD despite trailing them in the polls. Therefore, as the potential kingmakers, the FDP and the Greens are likely to have strong hands to play but they are poles apart from each other in terms of party policies.


Despite their importance in getting either of the major parties across the threshold, we expect that in any coalition involving the FDP or the Greens, the Greens will have to water down their planned tax increases, while the FDP in return will have to accept a slower than wanted return to fiscal discipline.

In a further twist, despite public opinion is strongly in favour of the FDP candidate, Olaf Scholz, for Chancellor, the eventual successor to Angela Merkel is not voted on by public opinion, but by the Bundestag. Given that Armin Laschet had less than 50% of the support of Marcus Söder in the CDU/CSU election for their candidate and yet the party chose Laschet, it does not necessarily follow that Olaf Scholz, the former finance minister, will be the next Chancellor, and in a Jamaica coalition, is unlikely to be.


The key question is what this means for the stock market and German equities in particular. Given that equity markets often react badly to uncertainty, and that Germany has been the poster child of Europe over the past 20 years, but now could be about to chart a less fiscally conservative course, we expect that the more domestically oriented SDAX index may be more volatile until the path is clear. Despite outperforming all other European markets under Merkel’s tenure, this year the German equities have significantly underperformed its French and Italian counterparts this year, which may well be a consequence of rising political risk.

Fortunately, Germany is the most internationally exposed of European countries with 47.6% of GDP related to exports of goods and services, so should be a certain extent shielded from the political machinations.


The VT Tyndall Global Select Fund has two holdings listed in Germany, Rational and Brenntag, which have only 12.9% and 9.2% of sales from Germany, and we do not expect these to be meaningfully impacted by whichever coalition ends up in power.

17th September 2021
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Data source (unless otherwise stated): Bloomberg
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