Markets

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

Elaine He oversees Bloomberg Gadfly's data visualization work in Europe and also pursues her own columns combining business and markets coverage. Before joining Bloomberg, she was a graphics editor at the Wall Street Journal and the New York Times.

Investors aren't expecting a shock result from today's Dutch election.

Betting markets show the populist Geert Wilders's Freedom Party trailing Prime Minister Mark Rutte's Liberal Party, as do the latest opinion polls.

Wilders' Ride
The Freedom Party has lost its early lead in Dutch opinion polls
Source: Peilingwijzer poll aggregator

Now, look again at the percentage of bets being made, and more wagers are being made on Wilders's Freedom Party coming out on top, as this chart shows.

What accounts for the divergence? The implied probability of winning quoted by the bookmakers reflects the weight of money being put on each outcome, not the number of individual wagers being taken. More punters are betting on Wilders' party.

Could this foreshadow a surprise?

Look at what happened in the Brexit referendum: at the time, my Gadfly colleague Mike Regan presciently pointed out that more bets were being placed on a leave vote just as the opinion polls put the remain campaign narrowly ahead.

Then there's the U.S. election. While the odds favored Hillary Clinton and the weight of money being placed on a Democrat victory, Trump was attracting more bets. Do I need to spell out the result?

Granted, the Dutch election isn't a binary choice and British punters may be less than omniscient about voters' intentions in other countries. Wilders has been losing ground in the polls in recent days, too.

But he could yet end up running the country's second-largest political party, and there's still room for political turmoil. Any successful coalition will only have a very small majority, or possibly attempt to govern from a minority. There are elections to the upper chamber in 2019, and finding a coalition that can govern with support from both chambers will be an added dimension.

Rising Tide
The Dutch AEX Index has outperformed the benchmark Stoxx 600 this year
Source: Bloomberg

So far, investors have been happy to look past this risk. The benchmark AEX is one of the best performing stock indexes in Europe this year, up almost 6 percent so far. Ten-year Dutch government bonds have actually managed to tighten by about 10 basis points relative to their German equivalent throughout the election.

Even if Wilders doesn't pull off a surprise on the scale of Brexit or Trump, investors may still need more than Dutch courage.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Marcus Ashworth in London at mashworth4@bloomberg.net
Elaine He in London at ehe36@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net