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Analysis: European elections

Across Europe, centre-right parties made gains in elections to the European Parliament at the expense of the centre-left.

Britain fitted into the broad pattern with Labour suffering a heavy defeat while the Conservatives gained seats. Labour received only about 15% of the popular vote and was beaten into third place by the United Kingdom Independence Party (UKIP).

A similar pattern was apparent in major European countries: Germanys Social Democrats and Frances Socialist party also suffered historic losses.

Across Europe the elections also portrayed a widespread disaffection with politics. At 43%, the turnout figures were the lowest since the elections began 30 years ago.

Many economists and fund managers are hoping that the centre-right victory will lead governments to pursue a more cautious fiscal stance. Colin Ellis, a European economist at Daiwa Securities SMBC Europe, says the shift of political power should increase the chances of spending cuts and only lead to slight rises in taxes.

He also expects more emphasis on bringing the government deficit down once Britain is through the worst of the recession. However, he says, it is unlikely that the new government will tighten fiscal policies during the downturn.

Chris Watling, the chief executive officer (CEO) of Longview Economics, also says to expect a stronger emphasis on reducing the governments deficit. The Labour Party has not made much of an attempt to balance books.

The short-term impact of the shift of political power will be marginal, he says. Meanwhile, decisions regarding the allocation of fiscal stimulus packages and introduction of monetary policies still lie within individual governments – not with the European Parliament.

Even against the backdrop of the historic turnaround, which suggests that Europeans used their vote to express anger over the recession, soaring unemployment, and immigration, Ellis says the economy is picking itself up.

Ellis says that for Europe – and even more so Britain – things look better than two months ago. At least the pace of deterioration is slowing.

Mark Lovett, the manager of the Charter European investment trust at Allianz Global Investors, says the most exciting element of investing in Europe, at present, is that he can still identify global leading companies in strong growth markets at attractive valuations which should provide long-term capital growth.

He says two satellite companies, SES and Eutelsat, are perfect examples of such opportunities, with their visible business models benefiting from the excellent growth trends in the global video and television markets.

While elections around Europe may have caused some political uncertainties, we do not believe they will influence the performance of companies owned by Charter European trust. Regardless of the final outcome, he maintains his strategy of focusing on individual stocks rather than adopting a country approach.

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