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Asian markets mixed on news of Merkel's weakened victory margin
ASIAN markets took Angela Merkel's bitter-sweet victory for a fourth term as Chancellor of Germany in their stride, with most key indices closing flattish or slightly lower.
In the elections, Mrs Merkel's Christian Democratic Union (CDU) and sister-party Christian Social Union clinched about a third (33 per cent) of the seats in the Bundestag - the party's worst showing since 1949.
The anti-immigrant Alternative for Germany (AfD) party surprised by landing 13 per cent of the vote, putting it in third place behind the incumbent and the Social Democrats (SPD).
This leaves Mrs Merkel scrambling to put together a coalition - potentially a three-way with the pro-business Free Democratic Party and the Green Party; the SPD has ruled out a continuation of its coalition with her conservative CDU party.
On Monday, the Straits Times Index dipped 0.13 per cent, or 4.34 points, to end at 3,215.91.
In Hong Kong, the Hang Seng gave up 1.36 per cent or 380.19 points, to close at 27,500.34; meanwhile, the Shanghai Composite dipped 0.33 per cent to 3,341.55 after a fresh round of curbs to contain the housing market.
Over in Tokyo, the Nikkei 225 gained 0.5 per cent, or 101.13 points to 20,397.58, amid news that Prime Minister Shinzo Abe was calling a snap election on Oct 22, and that a 2 trillion yen (S$24.07 billion) stimulus package was in the works.
Germany's stock market opened lower on Monday but gained ground through the trading day, which ended only after this paper went to press.
Pan Jingyi, a market strategist for IG, said: "We have certainly seen a tough weekend for elections, with both the German and New Zealand election providing some reasons to unnerve investors."
She noted, however, that the spillover effects to Asia appear to be limited, even as the CDU's diminished vote share slightly dented market sentiment in Germany.
Over the weekend, New Zealand's elections concluded without a single party in power. Prime Minister Bill English's National Party garnered the most votes but failed to secure a majority, which means that it could be weeks before a coalition and ultimately, a government, is formed.
Ms Pan added: "For the long-term, investors in Asia and other parts of the world may find the focus remaining on the rise of populism in Europe.
"With Germany, a key member of the European Union, exhibiting signs of rising support for the far-right movement, the concern would be how such a trend may bring about further political risks and volatility to global markets."
CIMB economist Song Seng Wun said that, following optimism amid robust growth in the eurozone, investors have received yet another reminder that the nationalist undercurrent remains deep. "We got a strong reminder after Brexit and the (US) election."
But while investors may have decided to hit the pause button, the outcome of the election in Europe's biggest economy is likely to have a temporary, rather than permanent, effect for Asia, he added.
"Bigger issues for Asian markets would be geopolitic risks (as well as) the pace of monetary tightening in Europe and the United States. The priority still remains on whether the global economy is on the path to recovery (and) whether orders are strong enough to support exports."
Meanwhile, market watchers expect slowing momentum behind Franco-German efforts to push for deeper integration in the eurozone, a concept which includes a centralised eurozone finance ministry; this splintering of parliament may force Mrs Merkel to pull back on such pan-European initiatives.
A Blackrock Investment Institute report on the German election said: "We prefer European equities over government bonds and credit amid a sustained, above-trend economic expansion and a steady earnings outlook. We see scope for the US dollar to regain some ground against the euro as the Fed presses ahead with policy normalisation and US inflation looks ripe for a rebound."