Small, affluent and at least until now, politically stable, Austria rarely features on global investors’ horizons. It might soon.
Austria’s stock market has been Europe’s star performer so far this year. The Austrian Traded Index (ATX) is up 20 per cent — twice as much as France’s CAC 40 or Germany’s Dax. Only Venezuelan, Polish and Greek stocks have performed better year-to-date, according to Bloomberg. Yet all is not well in the Alpine country famous for its mountain scenery, schnitzels and The Sound of Music.
A snap election called this month for October 15 offers another chance for Europe’s rightwing populist politicians to take power — just three weeks after Germany is likely to re-elect Angela Merkel as its chancellor. Austria’s Freedom party will play on the country’s economic underperformance relative to its larger neighbour, as well as Europe’s migration crisis.
The ATX’s surge is partly stock specific, the result of improvements at Erste and Raiffeisen banks and the OMV energy group, which comprise more than 40 per cent of the index. Nevertheless, Austria illustrates increasing confidence in continental European economies — and rapidly diminishing fears about political risks in the wake of France’s presidential election. “The risks in terms of populism are for now . . . most probably higher in the US than Europe,” reckons Fritz Mostböck, head of research at Erste.
Historically and geographically, a link between west and east Europe, Austria is a play on the continent’s formerly communist economies. Typically market leaders in industrial niches, Austrian companies also make sensible things the world needs in an investment cycle upturn, such as high-spec car parts (Voestalpine), bricks (Wienerberger) or hydropower equipment (Andritz).
The ATX is also a post-global financial crisis catch-up story. The index is still 30 per cent lower than at the start of 2007 even though the worst fears about its banks’ exposures never materialised. True, Austria’s economic growth trails Germany. But since the crisis it has matched rivals such as France and the Netherlands, boosted recently by the fiscal stimulus triggered by the migration crisis and modest tax reforms.
So it is perhaps not surprising that recent political upsets in Austria have left the financial markets looking unperturbed.
The October 15 election will be a three-way contest. The Social Democrats and the centre-right People’s Party currently govern as a “grand coalition”. Until recently, voter disenchantment with their performance was spurring the third contender — the far-right populist Freedom Party, which was leading in opinion polls.
Earlier this month, however, Sebastian Kurz, Austria’s 30-year-old foreign minister, took over the leadership of the People’s Party. Mr Kurz’s youth and charisma have led to comparisons with France’s new president Emmanuel Macron, and his party’s support in opinion polls has since leapt above the other two parties.
But Mr Kurz would almost certainly need a coalition ally, and there is a good chance he would turn to the Freedom party — which was internationally reviled in the past because of its perceived xenophobia and links with pan-German nationalism.
The implications might not be as dramatic as they would have been if anti-establishment, Eurosceptics had won in France — or took control after Italy’s elections next year. The Freedom party does not seriously challenge Austria’s membership of the EU or eurozone. “I mean no offence to Austria, but it would not be the same as if Italy’s [Euro-sceptic] Five Star Movement was in office,” says Frederik Ducrozet, economist at Pictet.
Nevertheless, a government which included the Freedom Party could add Austria to the “awkward squad” of EU countries obstructing the policies a newly-revived Franco-German partnership under President Macron and Chancellor Merkel — especially on migration policies and European economic integration. One of western Europe’s previously most stable and predictable economies would have become less so — a good reason to put it on global investors’ watch lists.
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