French election result: clouds clearing over Europe?



​European equities manager Tim Stevenson reviews the first round result of the French election, which saw political outsider Emmanuel Macron, founder of the ‘En Marche!’ movement, lead the polls.

Round one of the French presidential election has produced a result that implies that Emmanuel Macron will be the next President, with 23.8% of the vote. He will face Marine Le Pen – the Far Right candidate who did not poll quite as well as expected (21.7%), but who scraped through to the second round run off ahead of the Republican nominee, former Prime Minister François Fillon (19.8%).

Polls for the second round run-off currently imply a vote of over 60% for Macron against less than 40% for Le Pen. As a result the French market has rallied very strongly this morning, led by banks. This better sentiment has spilled over to the rest of Europe.

The clear reason for this rally is that European markets have been held back by political risk over the last 12 months. This risk has been accentuated by tweets from US President Trump and the generally thoroughly anti-European mainstream press in the UK. Markets in Europe have been worried that Europe would follow the Brexit surprise and the Trump surprise and also overturn the establishment. To some extent this has been the case as neither of the established “ruling” parties of the last 30 years will be in power after 7 May. The difference is that Macron is relatively Centrist and is adamantly pro-European.

The reasons markets responded so positively is that it is now almost certain that after the German Elections in September the very aptly identified (by Citi) “political risk premium” in Europe will now fall away and allow investors to focus on:

1. Improving European (ex UK) economies
2. The huge discount at which European equity markets trade compared with the US
3. The reality that European corporate profits are finally improving after a wait of six years.

In terms of strategy we are unlikely to change much. Firstly we are already relatively overweight in France. We are also positioned for the gradual improvement in economic activity and earnings that we continue to see. We hold two bank positions, one insurance company and one pure fund manager name in France, so are heavily overweight in French financials. Overall we are underweight in banks but overweight in other financials.

The next event of note will be whether the French Parliamentary Elections in June provide a structure that will allow Macron, if he does emerge victorious from the second round of the vote in May, to grip many of the issues that the country faces. It seems fair to think this will be the case, as most “moderate” or “centrist” parties are rallying behind Macron for the Presidential vote. They should realise that they will need to support him afterwards, in order to prevent the next French Elections in five years from turning into a radical overthrow of what remains.

The final relevant point is that European leaders will have seen, heard and felt the enormous level of protest and anger against the “European project” over the last 12 months. They now need to grip this problem and come up with a workable solution.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

For promotional purposes.

Anything non-factual in nature is an opinion of the author(s), and opinions are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time due to changes in market or economic conditions. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its us.

Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Horizon Pan European Equity Fund

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

Risk rating


Important message