Portugal's Centre-Right Lead in Election: Investment Implications Amid Coalition Uncertainty

The Portuguese legislative election on 18 May 2025 has centred on the Democratic Alliance (AD), a centre-right coalition led by Prime Minister Luís Montenegro, which polls show leading with 32–34% of the vote. However, AD remains short of the 116 seats required for a majority, leaving coalition negotiations as the critical factor shaping Portugal’s economic trajectory. This article examines the investment implications of potential post-election coalitions, focusing on fiscal policies, sectoral priorities, and geopolitical risks.

Current Polling and Coalition Dynamics

Recent polls indicate AD’s lead is stable but insufficient for a majority. The Socialists (PS), at 26–28%, remain the largest opposition force, while the far-right Chega (15–19%) holds significant leverage as a potential kingmaker. Smaller parties like Iniciativa Liberal (IL, 8–10%) and LIVRE (4–5%) round out the field.

The AD’s projected 80–85 seats fall far short of a majority, necessitating alliances. Key scenarios include:

1. AD-PS Coalition: Combining AD’s 34% and PS’s 27% would secure a commanding 160+ seats. However, ideological rifts—AD’s pro-business austerity vs. PS’s social welfare focus—threaten this path.
2. AD-Chega Coalition: Though politically toxic, a 50-seat boost from Chega could give AD a narrow majority. This risks alienating moderate voters and triggering market uncertainty.
3. AD-IL Minority Government: A 90–95-seat alliance might govern via ad-hoc support, but instability looms.

Economic Policies by Coalition

The election’s outcome will directly influence fiscal priorities and sectoral investment opportunities:

1. AD-Led Government (Preferred Scenario)

• Privatization Drive: AD’s plan to sell state assets in energy, infrastructure, and real estate would benefit private equity firms and construction companies. Sectors like utilities and transport infrastructure stand to gain.
• Corporate Tax Cuts: AD’s proposed 1% reduction in corporate tax rates (to 15%) would boost profitability for firms in finance and tech.
• Risks: The Spinumviva scandal, involving Montenegro’s family consultancy, could deter foreign investors if legal investigations expand.

2. AD-PS Grand Coalition

• Balanced Fiscal Policy: A merger of AD’s austerity and PS’s social spending would prioritize healthcare and education, favoring public service contractors and utilities.
• Immigration Moderation: Streamlined work visas for skilled labor could attract tech firms while easing labor shortages in agriculture and construction.

3. Chega Influence (Wildcard Scenario)

• Austerity and Nationalism: Chega’s demands for stricter immigration controls and defense spending could disrupt sectors reliant on migrant labor (e.g., construction) but boost security contractors.
• Market Uncertainty: Investors may flee perceived instability, pressuring the euro and Portugal’s bond yields.

4. PS-Led Left Coalition

• Public Sector Expansion: A PS-led government would halt AD’s privatization agenda, benefiting state-owned enterprises but deterring private investment in infrastructure.
• Renewables Focus: Partners like the Greens (LIVRE) could accelerate investments in renewable energy projects.

Sectoral Implications

• Real Estate & Construction: Thrive under AD’s privatization but face risks if PS gains power. Monitor .
• Healthcare & Public Services: PS-led coalitions would boost spending here, favoring hospital operators and pharmaceutical firms.
• Tech & Innovation: AD-IL alliances would advance deregulation, attracting fintech and green tech ventures. Watch .
• ESG Compliance: Investors must avoid sectors tied to Spinumviva (e.g., real estate consulting) and monitor Chega’s anti-immigration policies for labor-related ESG risks.

Key Risks

1. Spinumviva Fallout: Legal outcomes could destabilize AD’s mandate. A guilty verdict for Montenegro could trigger early elections.
2. Voter Volatility: With 44% of voters undecided, final-week shifts could alter seat counts dramatically.
3. Market Sentiment: The PSI 20 has underperformed the Euro Stoxx 600 by 12% since January 2024 amid election uncertainty.

Conclusion

Investors should prioritize agility and sector-specific analysis. A centre-right AD-IL coalition offers the clearest path to privatization-driven growth, particularly in real estate and infrastructure. However, the Spinumviva scandal and potential Chega influence demand caution. A PS-led left coalition, while less market-friendly, could stabilize public services and renewables.

Monitor the PSI 20 and bond yields post-election to gauge investor confidence. Sector-specific plays include:- Buy: AD’s privatization targets in utilities and infrastructure.- Avoid: Immigration-sensitive sectors (construction, agriculture) if Chega gains influence.- Hold: Tech and healthcare under any scenario but tilt toward AD’s pro-growth policies.

The election’s outcome is a crossroads for Portugal’s economy. Investors must balance AD’s reformist potential against the risks of political fragmentation and scandal—a delicate equation in a market where 116 seats decide stability.