German stocks surge following conservative election victory
Election outcome lifts German stocks, defence sector leads gains
Germany’s stock market led European gains on Monday after the opposition conservatives, led by Friedrich Merz, won the national election. However, concerns over lengthy coalition talks could delay economic reforms.
Key Takeaways
- The German blue-chip index rose 0.8%, with mid-caps surging 2.3% and small caps advancing 1.1%, driven by optimism following the conservative election victory.
- Arms makers Rheinmetall, Hensoldt, and Renk saw gains between 3.3% and 4.3% amid expectations of higher military budgets under the new administration.
- Complex negotiations to form a government could delay essential budget and economic reforms, with far-right and left parties holding enough seats to block constitutional changes.
German Stocks Lead European Gains After Election Win
German equities stood out on Monday, leading European markets higher following the national election results. The pan-European STOXX 600 index rose 0.2%, while Germany’s blue-chip index climbed 0.8%. Mid-cap stocks surged 2.3%, and small caps gained 1.1%, reflecting investor optimism about a potential shift in economic policy, reports Reuters.
The real estate and utility sectors led the gains across Europe, both rising over 1.5%. The market’s positive reaction underscores expectations of a more business-friendly environment under the incoming conservative administration.
Defence and Utility Stocks Rally on Prospects of Increased Spending
German defence stocks posted significant gains amid anticipation of increased military spending under Friedrich Merz’s leadership. Rheinmetall, Hensoldt, and Renk rose between 3.3% and 4.3%, pushing the European aerospace and defence index up by 0.9%.
Rheinmetall AG (RHMG) share price dynamics (2022 - Feb 2025) Source: TradingView
This rally reflects investor confidence that the new administration will prioritize defence investment, given Germany’s strategic role in European security and ongoing geopolitical tensions.
Uncertainty Over Coalition Talks Clouds Economic Outlook
Despite the conservative victory, the path to forming a stable government remains uncertain. The far-right Alternative for Germany (AfD) achieved a historic second-place finish, securing enough parliamentary seats to complicate coalition negotiations.
“The market is still digesting the news and trying to understand whether the pro-growth policies could be implemented by the new coalition,” said Lale Akoner, lead global market analyst at eToro.
Prolonged talks could delay crucial economic policies, including budget reforms and increased public spending needed to revive Europe’s largest economy after two years of contraction.
Germany’s stock market responded positively to the conservative election win, with defence and utility stocks seeing strong gains. However, the complexity of coalition negotiations poses risks to the timely implementation of economic reforms. Investors remain watchful for signs of policy direction from the incoming government.
Reminder, concerns about a newly identified coronavirus strain in China drove vaccine-maker stocks higher and travel-related stocks lower.
