Deutsche Bank CEO cautions AfD and Left state election wins may scare investors

Sewing's comments are not expected to single-handedly shift the DAX, as state-level administrations do not shape national economic policy and the benchmark consists largely of global firms whose revenues hinge more on world demand than local politics. The clearest direct impact lies with German residential property shares, for which the Left Party's promise of expropriation in Berlin creates headline risk for publicly traded landlords with sizeable portfolios in the city. Over the longer term, a growing perception of political instability could widen the discount that international investors already apply to German assets, elevating the significance of Merz's reform speed for the DAX and MDAX stocks that focus on the domestic market.

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Germany's leading banker cautions that investors overlook the nuances of federalism, meaning that a shock in one state is perceived as a shock to the nation.

Key points:

• Deutsche Bank CEO Christian Sewing stated that the emergence of far-right and far-left parties poses a serious threat to Germany that ought not to be underestimated.
• Last month, the AfD came within a hair's breadth of an absolute majority in Saxony-Anhalt and finished first in Mecklenburg-Western Pomerania.
• The Left Party achieved its strongest result ever in Berlin's municipal election, vowing to seize residential property company holdings.
• Sewing argued that foreign investors are improbable to differentiate between a state administration and the entire nation.
• He called on Chancellor Friedrich Merz's administration to persist with economic reforms, describing them as the sole countermeasure to extremists on both ends.

The chief of Germany's biggest lender has cautioned that the recent successes of extremist parties in state polls could repel foreign investment, and pressed the national government to maintain its economic reform push.

In remarks to Bild (via Reuters), Deutsche Bank CEO Christian Sewing said the ascent of the far right and far left presents a major hazard for Germany that must not be minimized. He contended that it is unreasonable to expect overseas investors to separate a particular state leadership from the federal level, and that this viewpoint is rational from an investor's perspective.

These remarks come after several state elections last month. The AfD, which advocates limiting immigration and sending back asylum seekers, and is deemed extremist by intelligence services in certain areas, fell just short of an absolute majority in Saxony-Anhalt's state parliament. About two weeks later, it secured first place in Mecklenburg-Western Pomerania. In Berlin, the Left Party claimed its largest win in the city's government election, campaigning on a platform to address skyrocketing housing costs by confiscating residential property company assets.

Sewing described the outcomes in Saxony-Anhalt and Berlin as neither good for economic expansion nor attractive to investors. Economists have likewise charged the AfD with creating an atmosphere that might discourage the skilled labour and overseas investment that Germany's economy requires.

The Berlin promise reopens a longstanding discussion in the city. In 2021, voters supported a non-binding referendum calling for large apartment owners' properties to be nationalized, but it was never enacted. The Left Party's victory now brings the matter to the fore, with the party in a more commanding role to advance it.

Sewing urged Chancellor Friedrich Merz's administration to persist with its reform agenda, calling it the sole way to counter extremists from both political wings. The caution arrives amid Germany's difficulties in reigniting economic growth, as investors monitor whether Berlin can implement reforms swiftly enough to allay worries about the political environment.