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.

We believe 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.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

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.

Important information

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

Janus Henderson Horizon Pan European Equity Fund

The Janus Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Henderson Management S.A. Any investment application will be made solely on the basis of the information contained in the Fund’s prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the Fund’s prospectus and key investor information document before investing. A copy of the Fund’s prospectus and key investor information document can be obtained from Henderson Global Investors Limited in its capacity as Investment Manager and Distributor.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Past performance is not a guide to future performance. The performance data does not take into account the commissions and costs incurred on the issue and redemption of units. 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. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

The Fund is a recognised collective investment scheme for the purpose of promotion into the United Kingdom. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Fund and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme.

Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. Key Investor document is also available in Spanish. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent. RBC Investor Services Trust Hong Kong Limited, a subsidiary of the joint venture UK holding company RBC Investor Services Limited, 51/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, Tel: +852 2978 5656 is the Fund’s Representative in Hong Kong.

Information on this document is on Janus Henderson Investors' best endeavours.

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.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • 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