Ask a French trader or investor whether Marine Le Pen is likely to become president of the euro zone's second-largest economy and you'll probably get the answer: jamais.
Follow that with a question about who will win instead, and you'll likely get a Gallic shrug. There may be certainty Le Pen will be beaten -- but nobody's quite sure by whom.
That accounts for much of the uncertainty in financial markets about France over the past month. Investors clearly attach more risk to the country's economy than a month ago, judging by the widening difference in yield between French and German government bonds.
Yet this isn't because of a Le Pen bounce in the polls -- her ratings have actually flat-lined.
The issue is that France's mainstream parties have produced no credible candidate polling more than 30 percent of the vote. As Nomura economist Charles St-Arnaud puts it, every month brings a new second-round favorite to face off Le Pen: Alain Juppe, Francois Fillon, Emmanuel Macron. The only consistent presence in the run-off is Le Pen herself.
That may not matter so much for a hedge fund betting on the vote as a binary outcome between Le Pen and Anyone-but-Le-Pen, given the latter is still likely to seal the deal.
But for investors with a longer-term view, whoever faces Le Pen matters -- especially for those who reckon this major euro zone economy needs more structural reforms. And in the near term, if none of the hopefuls fails to break decisively out of the cluster of second choices, markets will probably stay on edge with each poll.
If the primary process was supposed to deliver strong, credible candidates, it has failed. Francois Fillon presents himself as a Thatcherite savior of France -- but he is polling third as a result of a jobs scandal and may not even convince his own party to keep him on board. The Socialists' Benoit Hamon is at the opposite end of the spectrum, calling for a more expansionary government spending policy; he is polling even further behind, but is gaining momentum. There's a possibility -- however improbable -- that he could strike an alliance with communist-backed Jean-Luc Melenchon and leap-frog the rest. If the run-off pairs Hamon with Le Pen, that would give her a 40 percent chance of victory, the clearest shot yet at the presidency, according to JPMorgan.
The most comforting hope for markets right now is independent reformist Emmanuel Macron. He is the closest thing to a centrist candidate in a wide-open race. But he is also a new, untested force who has so far failed to close in on Le Pen in the polls and whose campaign is warning of Russian cyber-attacks. Opinionway suggests he has lost ground recently, though a monthly poll of voters' sentiment does point to a 4.5-percentage-point advantage over Fillon. A Macron victory would be a relief -- but one with execution risks given he would likely lack a parliamentary majority, according to Exane BNP Paribas.
To be sure, France's economy is no basket case and the euro zone as a whole is doing better. That's an important tailwind for whoever wins the election. Parliamentary elections in June could produce a counter-balance: a prime minister from a different political party to the president. And Credit Suisse Group AG economists expect investors to gradually become more, not less, confident that Le Pen will lose.
But the race is still remarkably open just two months ahead of first-round voting. That makes the potential impact of negative surprises and external events stronger, according to Deutsche Bank.
For investors, both the near and long-term pictures look fuzzy. "Anyone but Le Pen" is a cold comfort.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Lionel Laurent in London at email@example.com
To contact the editor responsible for this story:
Edward Evans at firstname.lastname@example.org