European stocks, and particularly the German market, have been hit once again over recent days by the possibility of political turmoil in Germany caused by disagreements within the ruling coalition over the country’s migrant policy.
The EuroStoxx 50 index fell 1.25% and the German DAX index finished the day 1.51% lower on Monday 18 June, as this new worry exacerbated existing investor concerns over the region.
Last week, the German Chancellor Angela Merkel admitted in a weekly podcast that the outcome of the row over immigration could be “decisive” for keeping Europe together.
This comment was made after it emerged that Germany’s interior minister Horst Seehofer, leader of the CSU Party which has formed a coalition with Merkel’s own CDU, is calling for tougher immigration laws in defiance of the Chancellor’s existing stance on the matter.
Seehofer is calling for Germany to turn away immigrants who have already registered in other EU countries, which would undermine Merkel’s open door policy adopted in 2015, since when the country has welcomed some 1.6 million refugees.
As of last week, it looked like the interior minister would go ahead with these plans with or without the Chancellor’s support, potentially forcing her to sack him and thus break the three-month old coalition keeping her government together. On Monday, reports emerged that Seehofer has agreed to give Merkel two weeks to come up with a solution, but the situation is still highly concerning for investors already worried about politics in the European region.
German ETFs hit by the news
As a result of this political turmoil, German stock ETFs, which had started gaining in performance over the past week, have seen a reversal, falling 0.9% on Friday 15 June, according to TrackInsight data. Over the month to that date, the return from these sits at a low 0.4% and the outflows for the period have reached €1.2 billion.
The largest ETF investing in German equities, the iShares MSCI Germany ETF – USD, fell 1.1% on the day and has seen some €239 million in outflows over the past month.
Investor sentiment towards European stocks remains low
Meanwhile, this negative picture for wider European stock funds is even more pronounced, as they absorb investors’ fears over the impact of the migrant crisis on top of the existing concerns over the situation in Italy and the recent scandal involving the former Spanish Prime Minister, which we have covered in previous articles.
Italy and France have also become involved in the migrant debate, with Italy’s interior minister Matteo Salvini, who is the deputy Prime Minister of the country, refusing to accept new refugee boats and calling for asylum seekers to be equally distributed across the EU, rather than being hosted by the first country they land in.
French President Emmanuel Macron, who is set to meet Germany’s Merkel to discuss Europe-wide policy later this week, is also backing Italy’s plan for a “fortress Europe”, which would stem the flow of economic migrants into the bloc, according to reports.
As a result of the escalating spat over immigration between European big shots, European stock ETFs are down 0.71% over the month, having fallen 0.96% on Friday, while outflows for the period have escalated to €5.4 billion (see chart below). Over the year to date, the cumulated outflows are now as high as €8.3 billion, despite performance over the period remaining positive at 2.5%.