FRANKFURT Reuters: Germany's upcoming national election is likely to have the most fragmented outcome in decades and markets could struggle to work out the implications for stocks, with one exception: if you score low on green technology you face trouble.
Analysts say the pro-environment Greens have a good chance of being part of any future government following the Sept. 26 vote, increasing the chance for more ambitious targets for solar and wind power and increased pressure to reduce emissions.
Is investors focusing on environmental, social and governance ESG issues in picking stocks, including in Germany, where plans have been described to exit coal and nuclear power plants.
The upcoming German election will have significant impacts on ESG-related policies, affecting corporates and investors, JP Morgan analyst said, focusing on stocks with high CO2 emissions as possible exposed.
This includes steelmakers Thyssenkrupp and Salzgitter, Germany's two biggest steelmakers, as well as chemicals giant BASF and potash and salt miner K S, the brokerage said.
Also DZ Bank analyst Christian Kahler saw polluters, such as HeidelbergCement, the world's second largest cement maker, and carrier Lufthansa, as challenged if emissions targets are tightened further.
In addition, there are concerns over what a stricter approach to emission could mean for Germany's mainstay car sector, which includes Daimler, BMW and Volkswagen.
Traders can be especially concerned about the outlook for Volkswagen, which has a checkered track record dating back to the emissions scandal in 2015, Matt Weller, global head of research at FOREX.com and City Index, said.
In Germany, investors in wind power stocks include Wind turbine maker Encavis and project developer Nordex, the message is different given the recent move from fossil fuels to increased renewable energy consumption.
This also holds true for E.ON - one of Europe's largest renewables players - and Energy networks operator RWE, Credit Suisse analyst Wanda Serwinowska said.
Describing the election as a major catalyst for Germany's utilities, she said RWE could outperform E.ON for the rest of the year given the expected focus on energy transition. E.ON shares are up a fifth year-to-date and RWE are down 8%.
Meantime, residential stocks are a sector that could come under pressure if a more left-leaning government runs the country.
Although it should be clear within hours of the polls closing on September 26 how the various parties have fared, it could take months of coalition talks to work out who the next chancellor will be and the make-up of the government as polls indicate no one party will come close to a majority.
If the Social Democrats would enter a coalition with the Greens and the Left Party, there would be a risk that rent controls would be tightened noticeably, Bernstein analysts wrote.
Rents are hotly debated in Germany, where housing prices have soared in recent years, and fears of further increases also played a big role when Vonovia and Deutsche Wohnen unveiled plans to merge in May.
But even this leftist alliance would probably not go so far as introducing a national rent freeze in large cities in Berlin, they said.