Preliminary results of the Austrian election show a pronounced shift to the right by a country long considered a core pro-EU supporter. While there may be little short-term impact on the broader financial markets, the question is whether these latest results will give new momentum to populism elsewhere in Europe.
The 15 October national elections in Austria did not result in many surprises. Thirty one-year-old Sebastian Kurz, leader of the People’s Party, is on course to become Austrian chancellor – and the EU’s youngest leader – after topping the poll with around 31 per cent of votes, according to preliminary results.
This outcome puts him in a strong position to form a coalition government. One of the big stories of the night is the success achieved by the right-wing Freedom Party – Mr Kurz’s most likely coalition partner – which gained more than a quarter of votes.
While the result will clearly be of interest to Austria’s voters, this election should not have much of an impact on the broader financial markets in the short term. The result does, however, represent a political shift to the right in Austria – long considered a core pro-EU country.
This reflects a longer-term issue at play in Europe: the continuing rise of populism and what it could mean for the European Union. While 2017’s election cycle has seen some defeats for populists – most notably Emmanuel Macron’s victory in France – the populist, right-wing Alternative for Germany (AfD) put in a strong showing in the country’s recent parliamentary elections. Catalonia’s push for independence from Spain is further evidence of populist sentiment.
With voters in Austria clearly casting their support for parties with populist messages, the question is whether these latest results will give new momentum to the movement elsewhere in Europe. The reason this matters to investors is because if populist trends turn into policy, it could create headwinds for growth and markets: closed borders can hurt economic growth, and protectionism can cause inflation to rise.
Of course, other factors – notably valuation and structural growth trends – remain critical factors for long-term investors, and the good news is that portfolios can be adjusted accordingly as these trends develop. Moreover, active investors will be best placed to reckon with populism-related risks head-on.
Neil Dwane, global strategist at Allianz Global Investors
