News Column

Bonds and stocks brush off Eurosceptic election gains

May 27, 2014

Asian shares also have a solid day by hitting one-year highs

Italian assets surged and German shares hit all-time highs on Monday as solid election showings by pro-European forces in both countries provided an antidote to Eurosceptic gains in France, the UK and Greece.

Though nationalists scored stunning victories in a number of weekend votes, Italy's pro-European Prime Minister Matteo Renzi's centre-left Democratic Party was on course for a resounding win over the anti-establishment 5-Star Movement of former comic Beppe Grillo.

For investors, it was a relief after pre-election polls had pointed to a much closer contest that would have raised fresh questions over the country's ability to keep its already wobbly economic reform programme on track. Italian shares jumped almost three per cent in heavier- than-usual trade and benchmark government bonds were on course for their biggest one-day percentage gain in almost a year.

In Germany, where Chancellor Angela Merkel's Christian Democrats finished top, the Dax index climbed one per cent to a record high, while there was a bounce for Greek stocks and in the currency market the euro pulled up from a three-month low.

"In Italy we've seen voters endorsing the policies of Renzi whose party came out as the strongest party in these elections and this seems to be taken very positively by the market," said Christian Lenk, a fixed income strategist at DZ Bank. "We have not seen spectacular outcomes in terms of Eurosceptic parties in the weaker countries except for Greece ... and that seems enough to draw investors back."

Asian shares had also had a solid day, hitting one-year highs thanks to a strong session on Wall Street on Friday, and also helped by an apparently decisive win for billionaire Petro Poroshenko in Ukraine's presidential election.

MSCI's broadest index of Asia-Pacific shares outside Japan was last trading up 0.1 per cent. Japan'sNikkei share average gained 1.0 per cent to a 7-week high, though trade was slow due to market holidays in London and New York.

Exit polls in Ukraine gave Poroshenko, a confectionery magnate with long experience in government and diplomatic ties to both Russia and the West, more than 55 per cent of the vote. Results were not be announced until later yesterday but runner-up Yulia Tymoshenko, on 13 per cent, made clear she would concede, sparing the country a tense three weeks until a runoff round would have been held.

"Poroshenko's victory in the first round of the vote is positive for political stability, even though there remains a huge uncertainty and we need to keep an eye on further developments," said Junya Tanase, chief currency strategist at JPMorgan Chase Bank in Tokyo. The improved mood lifted Russian stocks one per cent to three-month highs and put pressure on the safe-haven yen, which fetched 101.94 yen to the dollar in European trade, near its lowest level in more than a week.

Among the many Eurosceptic successes, France's far right National Front scored a stunning victory that Prime Minister Manuel Valls called "an earthquake" for the country and for Europe. As worries over Ukraine eased, traditional safe-haven gold shuffled back to $1,291 an ounce and Brent crude fell below $110 a barrel, dipping further from last week's two-and-a-half month high.

Among emerging markets, most Asian currencies rose although the Thai baht continued to underperform in the wake of a military coup.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Khaleej Times (United Arab Emirates)

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