The election of Emmanuel Macron as French president should have come as a significant relief to investors. After all, his far-right opponent Marine Le Pen might have dragged France out of the Eurozone and the EU.
However, a rally in the euro has stalled and stock markets across Europe are relatively subdued. This is a reminder that markets are inherently forward looking.
BETTER TO TRAVEL THAN ARRIVE
Although the credibility of opinion polls has been undermined by the shock Brexit result last June and Donald Trump’s election last November, investors clearly had little doubt Macron would prevail. It seems investors are now taking profit as that confidence has been rewarded.
It is also worth noting that the 35% of votes garnered by Le Pen is the biggest ever vote share for her National Front party. Therefore we’d suggest political risk is still on issue in Europe, such as French assembly elections in June and German federal elections on 24 September.
UBS global chief investment officer Mark Haefele comments: ‘Continental Europe has so far avoided the swing to populism that threatened to undermine the region’s institutions. Voters in Holland and now France have rejected anti-European politicians.
‘We expect market attention to shift to the Eurozone’s economic recovery. But we would note that while populist parties have not triumphed in continental Europe, they have gained ground. We will continue to pay close attention to political risks in the months ahead.’
WILL MACRON DISAPPOINT?
ETX Capital analyst Neil Wilson comments: ‘European equity investors have taken the Macron victory in their stride and are now looking to whether the new president has the muscle to carry out economic reforms.
‘It feels like investors are already pricing in the risk that Macron will not live up to the expectation.
‘With a third of voters backing Le Pen and abstentions highs, there is not universal adoration for the ex-banker.
‘This might make it tougher than he thinks to engineer reforms. His time in the economy ministry was notable for timid reforms. With a personal mandate this time might be different but it’s going to be tough to energise France’s sclerotic economy.’
