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ESG Focus: A Green Revolution Made In Germany

ESG Focus | Jul 14 2021

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

A Green Revolution Made In Germany

Widespread vaccine rollouts are seeing European markets open up and pathways to the global recovery become clearer. Saxo Markets predicts a transition to a greener economy in a post-covid world is set to be the defining feature of the upcoming third quarter.

-All eyes are on Europe as green energy looks to be a decider in the German elections and UK markets offer global investment potential
-Europe taking a lead in the green revolution may improve the euro, but Asia investors are being pointed towards the UK market for investment potential
-The US dollar may weaken in a high inflation, post-stimulus economy
-Commodities continue to make a play for long-term investor interest into the third quarter

By Danielle Austin

Green agendas continue to dominate global government decisions and dictate future trends and equity market movements.

According to Saxo Markets, the federal German election could be a catalyst for Europe to define itself as a global leader in the green energy movement and give it an edge over the US and China.

Investors from Asia looking to invest in European markets are being steered towards the smaller UK market subset, offering more predictability and a more defined focus on shareholder interests.

The US dollar has continued to see-saw in recent months thanks to increased liquidity off the back of stimulus packages, while commodities are predicted to continue with their recent growth streak as infrastructure spend increases.

German Green Party set to start a revolution

It is Saxo Markets’ observation that young voters appear to be taking the wheel and steering to a likely win for a Green-Black alliance in the upcoming September German election, with a lesser chance of the Green Party scoring enough votes to take singular control.

It is Saxo’s view that a win for the Green Party is indicative of the generational shift in political agendas occurring not only in Germany but in wider Europe. The increasingly left-leaning younger generations are casting their votes for a political agenda that focuses on mitigating climate change and reducing carbon emissions in a climate of equality and social justice.

Current Chancellor Angela Merkel has largely disappointed climate-focused voters, with the country failing to enact change to reach its 2020 emissions goals and only reaching targets as a result of covid impacts.

According to Saxo, the German Green Party has managed to capture the current zeitgeist of youth climate and social justice movements that have propelled the party’s popularity in recent years. 

Recommitment to the EU could equal euro recovery

Saxo notes a recommitment to the European Union from all members to deal with legacy bank issues, reform harmonisation and make significant fiscal commitments could result in a remarkable recovery for the euro post-election.

While the EUR750bn recovery fund will not be sufficient for many periphery-EU members to recover from excess debt, an in-power German Green Party could pave a path to wider recommitment to the EU through increased financial commitment.

Saxo Chief Economist and CIO Steen Jakobsen describes the German Green Party as pro-EU and anti-Russia and China and a win by the Green Party is expected to drive movement on the EU project through a mutualised, climate-driven agenda and significant fiscal stimulus.

The EU Emissions Trading Systems could further be a catalyst for a green revolution globally, forcing countries outside of Europe to undertake green measures to complete production for European companies.

Asian investors narrow in on UK market

While Europe is offering interesting long-term investment opportunities for investors looking to sustainability, climate crisis and ESG initiatives, Saxo recommends Asia investors would be well served to focus on the smaller UK market.

As a spin-off of the wider European market, the UK offers the ability to focus its own objectives and the needs of its stakeholders, while the EU remains fragmented on policy and fiscal matter.

Saxo experts highlight the post-Brexit UK market as one of the most underweighted currently in global portfolios, but the UK offers reduced uncertainty having made it through Brexit contentions and being one of the leading countries globally in the vaccine rollout.

According to Saxo, the FTSE100 has exposure to cyclicals including financials and commodities that are likely to perform well in an inflation and rates-rising period.

US stimulus impacts take hold

Saxo expects an increasing focus shift to the impacts of the US stimulus to roll out over the third quarter.

The US dollar could weaken in a post-stimulus economy, with Saxo experts pointing out since November 2020 European equities have begun to outperform US equities for the first time in more than a decade.

Following increased liquidity of the US dollar caused by stimulus packages, Saxo’s number one surprise is the US dollar didn’t devalue further in recent months.

Commodity rally to continue into the third quarter

It is Saxo’s view the commodity sector appears geared to continue to rally into the third quarter, after five consecutive quarterly gains, although the growth rate is expected to slow.

The Bloomberg Commodity Spot index has now increased by 75% since March 2020, recently reaching a ten-year high. Strong, stimulus-driven demand for key commodities may be driving a super-cycle, but Saxo expects rising demand to be longer lasting.

Saxo predicts the likes of gold, silver, copper, iron ore, aluminium, zinc and platinum to continue to attract demand from a combination of increased government spend on infrastructure and decarbonisation.

Additionally, increasingly unpredictable weather patterns are driving a need for a stock build of agricultural commodities.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

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