In recent weeks, India’s national elections garnered plenty of press. And the U.S. presidential campaign is an evolving story unto itself. But advisors and investors considering Europe exposures would do well to examine the potential effects of recent election results on that continent.
Just days ago in European Union (EU) parliamentary elections, the right-leaning Rassemblement National (RN) surged, prompting French President Emmanuel Macron to dissolve parliament and call a snap election. It’s possible Macron can remain as president. But he’d likely have to find a way to work with more conservative factions.
The snap election in France follows ascents to power of conservative leaders in Italy and the Netherlands. That indicates some large eurozone nations may be trending to the right. However, that’s not been a detriment for the WisdomTree Europe Hedged Equity Fund (HEDJ). Over the past two years — a period including some conservative leaders rising to power in Europe — HEDJ is higher by 37.2%. That’s an advantage of 760 basis points over the unhedged MSCI EMU Index.
HEDJ Can Evolve With Benefit From Changing Politics
Some experts believe that in many developed economies, the impact of elections is short term. They believe efficient markets should function based on fundamentals, not the person occupying president or prime minister titles. There’s certainly some truth to that. But advisors and investors cannot ignore the fact that the winds of political change may be blowing in Europe.
Regarding France and its effects on HEDJ, political change is potentially afoot. That’s because the fund allocates 23.29% of its weight to French stocks. And that’s pertinent when considering Macron may remain in power but have to govern from the center.
“If RN is successful in not only winning, but also forming a coalition majority government, then we can expect co-habitation with Macron remaining as president. This means that he will retain some control (via veto) over some national security issues, but ultimately, the domestic agenda will shift and be led by Jordan Bardella, president of RN,” according to Schroders.
Populism the Big Winner
As it pertains to HEDJ, it’s also worth acknowledging populism was the big winner in EU parliamentary elections. That includes the Netherlands and France, which are the ETF’s largest and third-largest geographic exposures, respectively. No one knows if Germany — the ETF’s second-largest country weight — will swing earnestly to the right, too. That’s a possibility investors should prepare for.
“Provisional results show that the big winners from the 2024 elections have been right-wing nationalist populist parties. The biggest winner was far-right nationalist Identity and Democracy Group (ID), which is expected to increase the number of seats held by 18%. The European Conservatives and Reformists (ECR) are also right-wing, and saw significant gains along with the largest party, the European People’s Party (EPP),” added Schroders.
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