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Political fears undermine share prices

Political fears undermine share prices
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Europe’s stock exchanges headed deep into the red on Monday with investors reacting to political worries.

They sold off shares – to buy things like safe haven German government bonds – after the Netherlands government failed to agree on budget cuts, making elections there almost unavoidable.

But the main focus is on France where Socialist Francois Hollande is looking likely to be the next president.

In Frankfurt, Stefan Scharffetter, a trader with Baader Bank, said: “After the first round of voting in France, Hollande is in the lead. We now expect him to win big in two weeks time as well. That means the Merkel-Sarkozy axis is kaput. They were both were on the same page as far as Europe was concerned, which was considered to be a positive thing.”

However, although the share sell-off was sharp it was not massive with one analyst saying that either means the markets do not mind Hollande’s policies or do not think he will go through with them.

The political situation in the Netherlands casts doubt on its support for future eurozone measures potentially further hampering efforts to stem Europe’s debt crisis.

“It’s beginning to look like the perfect storm,” Stewart Richardson, chief investment officer at RMG, said. He believes a leftward lurch in policy for France would be a pretty bad step for Europe. “(And) if there is a Dutch election coming up soon it just adds to the whole cocktail of worries for the market,” Richardson said.