Heavy Weather in Europe: Key Elections Challenging EU's Future

Published 14-Mar-2017

  • Populist candidates in key Dutch, French and German elections continue pressure on the European Union, following last year’s Brexit vote
  • Election outcomes seen as a referendum on the future of the European project and measure of populist sentiment on the continent
  • Implied volatility measures suggest political uncertainty has not been priced in
  • Given the uncertainty, investors should consider volatility protection and tactical flexibility, while rethinking European bond holdings

In addition to the structural flaws in the Eurozone and ongoing debt crises in Greece and Italy, elections in the Netherlands, France and Germany could pose additional shocks to European integration over the next six months. We take a look at the disconnect between the low implied volatility measures and other tail risk measures as we head into the first round of voting in the Netherlands. We provide a preview of other major contests over the next six months and how investors might protect themselves from the potential ballot box shocks.

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