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Even the chance of a far-right party getting into power in Sunday’s Austrian election isn’t expected to spoil the run for investors in Europe’s best-performing developed stock market this year.
The conservative People’s Party — the leader in opinion polls — is expected to form a governing pact with the nationalist Freedom Party following the Oct. 15 vote. Since the latter has dropped the anti European Union-rhetoric of its past from its platform, fund managers see a partnership between the two as broadly benefiting the Austrian Traded Index.
The relief is a change of pace for investors in a year where populist parties in France and the Netherlands dominated headlines ahead of elections and as political risk roils markets in Spain and Turkey. In Austria, investors are instead expecting that a partnership between the conservatives and the Freedom Party could help extend the ATX’s 27 percent run this year by helping bring about corporate and wage tax cuts that would slash companies’ tax bills and boost domestic demand.
“The People’s Party is surely by far the most economy-friendly and financial markets-friendly party, and the Freedom Party has toned down their rhetoric and do not talk about leaving the EU at all anymore,” Guenther Schmitt, a fund manager at Raiffeisen Kapitalanlage in Vienna, said by phone. “People in Austria are not worried this election might go into an anti-EU direction.”
Among potential winners in the stock market are domestically-oriented companies that could benefit from Conservative candidate Sebastian Kurz’s proposal to scrap tax on retained corporate earnings, including real estate companies and some financial firms, investors said. So are potential candidates for privatization, as stock pickers see the topic coming to the forefront after the vote.
Still, any positive impact on the Austrian stock gauge will be somewhat muted by its international exposure: Austrian firms derive less than 13 percent of their revenue from the country, according to Morgan Stanley. While equities could well benefit in the medium- to longer-term, fund managers are not taking short-term positions based on the election’s outcome, instead citing factors like the pick-up in global growth as more important for the fate of Austria’s stock rally.
Here is a round-up of how equity investors, analysts and economists view the impact of the election on Austrian stocks:
“If the People’s Party and Freedom Party get together, there would be an overall sentiment boost for financial markets, including equities,” Raiffeisen’s Schmitt said. “On the other hand, we have to be realistic — there probably won’t be any impact in the short term.”
According to Schmitt, privatization could become an important topic in the aftermath of the vote because it’s “one easy option to get quite a substantial amount of money into the budget.” Real-estate company Bundesimmobiliengesellschaft m.b.H., known as BIG, is a possible candidate, he said, in addition to mail carrier Oesterreichische Post. A reduction of Austria’s stake in Oesterreichische Post has been considered in the past.
UniCredit Bank Austria
“The market can expect a government that is much more business-oriented than the current one,” Stefan Bruckbauer, chief economist at UniCredit Bank Austria in Vienna, said by phone. “The People’s Party and Freedom Party together have the bigger tax-reduction package in their campaigns, which should strengthen domestic demand and companies that do a lot of business in Austria.”
Bruckbauer expects industrial and real-estate firms to benefit from Kurz’s retained earnings tax reduction because “they tend to invest a lot — if you retain more earnings, you normally use them for investments.” Financial firms exposed to the local market, like Erste Group Bank AG and insurance companies, will benefit from the boost in domestic demand, he said.
Matejka & Partner Asset Management
“Austrian companies are already doing a good job — no political influence is necessary, it will just be a helping hand,” Wolfgang Matejka, managing director at Matejka & Partner Asset Management in Vienna, said by phone. “The new government may want to reinforce its existing relationships with eastern European neighbors, which bodes well for companies with ties to those markets.”
“Ultimately, the Austrian market will respond more to a stronger global economy rather than local political developments,” Ken Odeluga, a market analyst at City Index in London, said by phone. “That said, the retained profits proposal could benefit large caps, and a government that enhances the pro-business climate in the country is good for investor sentiment.”