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Friday, 20 September, 2002, 17:35 GMT 18:35 UK
Markets fear election draw
A trader at the Frankfurt stock exchange
Frankfurt's Dax index has fallen 40% since March
After a close-fought election campaign, Germany could end up with no clear winner on Sunday.


Both Schroeder and Stoiber are likely to re-introduce capital gains tax for corporations

Michael Haid
Sal Oppenheim
And for the markets, that could be the worst outcome.

Frankfurt's Dax index of leading shares is expected to fall if neither of the two main parties - the ruling Social Democrats (SPD) and the opposition Christian Democrats (CDU/CSU) - wins outright.

"That would certainly be the worst-case scenario," said Victor Nossek, an analyst at Commerzbank.

"If neither of the big parties get a majority it will be perceived badly by the markets as it will look like there will be no chance of reforms due to internal conflicts," he added.

Lagging behind

The Dax index has lost about 40% of its value since March, making it Europe's worst performing stock market.

It has lost more than 10% this week and the value of the companies on its list has fallen by 86bn euros (54.3bn; $84.7bn) since the start of September.

Worries about the new government would add to concerns about the health of the world economy and a possible war with Iraq.

Bank and insurance shares are most likely to be affected because of the tax plans of Chancellor Gerhard Schroeder and his challenger Edmund Stoiber.

Tax troubles

"Both Schroeder and Stoiber are likely to re-introduce capital gains tax for corporations.

"That would be negative for valuations of banks and insurances," said Michael Haid, an analyst at Sal Oppenheim.

There should be more clues about the health of Germany's economy on Wednesday when the Ifo business sentiment index is published.

If it falls for the fourth successive month, it will suggest that the weak economic recovery in Europe's biggest economy is unlikely to gather speed.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Theo Leggett
"Many Germans seem to care little who's in charge of their economy"
Gerhard Schroeder

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08 Sep 02 | Europe
19 Sep 02 | Country profiles
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