With a week to go before the general election in the Netherlands, the race appears to be a dead heat between the populist, nationalist Party for Freedom led by Geert Wilders and the centrist People’s Party for Freedom led by incumbent Prime Minister Mark Rutte.
The Netherlands AEX benchmark stock index has been rising sharply this year, outpacing impressive gains seen in broader European indexes. Conventional wisdom has it that these gains are a sign that asset managers assign a very low probability to a victory by Wilders and the Party for Freedom.
“The blase market reaction is because it’s not a core economy like France or Germany, but it does set the table for the rest of the year,” said Jasper Lawler, senior market analyst at London Capital Group. “There’s also a consensus that they won’t be able to form a [coalition]. I think that’s why nobody’s too worried.”
“But even though I don’t see an upset here, I do think markets are underpricing risk here,” he said.
This echoes a lot of the commentary about how the market would crash in reaction to a Donald Trump victory. We now know that commentary got it backwards: markets boomed after Trump won in November. Similarly, stocks in the U.K. rallied within days of the Brexit vote that many experts had predicted would bring doom to the British economy.
In other words, markets appear to like center-right nationalism and populism. Instead of underpricing the “risk” of a Wilders victory, markets are more likely pricing in the odds of a Wilders victory as a positive factor.
There’s another reason to think Dutch stocks would rise with a Wilders victory. That begins with the observation that Wilders is often described as “the Dutch Trump.” With 21% of the revenue of the companies in the AEX index derived from the U.S., according to a recent Wall Street Journal report, joining America’s embrace of economic nationalism and populism is likely to lead to improved conditions for the businesses in the index.
It’s always dangerous to project future events based on the movements of financial markets. But if there is a message in the Dutch stock market, it is likely that the chances of a Wilders win are stronger than polls and pundits suggest.