Here’s What Analysts Are Saying About the First Round of French Elections

More room to run after a relief rally?

Future of France: Macron and Le Pen Go Head-to-Head

How do you say “risk-on” in French?

Investors are cheering the results of the first round of voting in France’s presidential elections after centrist Emmanuel Macron and far-right nationalist Marine Le Pen emerged victorious from the five-way race. The result triggered a relief rally in European stocks and sent the euro jumping by the most in a month on the expectation that Macron is set to become France’s next president in a vote seen as a barometer for the future of the European Union. Meanwhile, S&P 500 futures also surged as much as 1.1 percent while safe haven assets such as gold and the yen slumped.

Macron and Le Pen are set for a runoff election on May 7. Macron, a first-time candidate and independent, is expected to defeat Le Pen by a wide margin with 62 percent of the vote according to a snap Ipsos poll for France Television.

French Election: Latest Coverage

Here’s a look at how investors are breaking down the implications of the vote today.

Citigroup Inc. strategists including Jonathan Stubbs said in a note the European banking sector is likely to benefit from the lower political risk premium and narrower sovereign spreads following the “risk-on” outcome:

  • French banks could outperform by about 10 percent in the short term, with the broader sector likely to be a key leadership group in the market
  • Lower political risk could also “release handbrake” across policy makers, chief executives, investors and individuals
  • Citi also expects international investors, particularly in the U.S., to return to European equities

At Goldman Sachs Group Inc., equity strategist Peter Oppenheimer said in a report that concerns about the election haven't kept European stocks and the Paris benchmark CAC 40 Index from performing well on an absolute basis in 2017. The CAC 40 is up 4.1 percent this year, on pace for a third year of gains:

  • Oppenheimer expects the results to generate some relief for the FTSE MIB Index, which tracks stocks on the Borsa Italiana, along with French and Italian banks
  • French domestic stocks and the CAC 40 haven't underperformed significantly as of late, as a result Goldman doesn't expect them to rally materially now, or after the second round

BlackRock Inc. analysts including Richard Turnill see the results as a positive surprise for risk assets in the near-term:

  • Macron, who is business-friendly and pro-European, can now build on his momentum and the results should lead to a material reduction in perceived political risk in Europe, BlackRock said in the note
  • Some risk premium should linger until legislative elections in June
  • If Macron becomes France’s next president, he may struggle to implement his agenda without a stable parliamentary majority
  • Italy is expected to be the next focus of European political risk

Stephan Barbier de la Serre, strategist at Makor Capital Markets SA, said in an email: 

  • Le Pen comes a close second, however the math of vote redistribution will simply not work for her and therefore expect Macron to win the run-off with a wide margin
  • It does dispel at once the risk of any kind of “Frexit” in the foreseeable future, which should lead to much reduced risk premia on French stocks and bonds and therefore boost prices of all European risk assets in the next few weeks

Jefferies strategists Sean Darby and Kenneth Chan remain bullish on French stocks: 

  • Although the electorate should not be taken for granted running into the second round, markets will applaud a Macron victory in early May given his pro-European inclination and reformist agenda
  • Jefferies says French financials have seen decent upward earnings and target price revisions through the first quarter

Mirabaud Securities LLP strategists see a number of industries benefiting from the results:

  • French banks, retailers, carmakers, mid-cap stocks are all beneficiaries, the strategists said in a note, while companies more exposed to international markets such as tech, luxury, beverages and defense should benefit less

Nomura Holdings Inc. strategists said in a report the reduced chance of France abandoning the euro is a straightforward positive for financial markets:

  • If Le Pen had won the most votes in the first round, this would have raised the possibility that the runoff would result in an anti-EU president, but given outcome, Nomura thinks a Le Pen presidency can be safely relegated to a risk scenario

Bruno Colmant, Degroof Petercam strategist, said in an email systemic risk is set to drop significantly:

  • Macron’s key to success if he becomes president will be to restore a political dialogue between France and Germany, which could lead to stronger fiscal stimulation; this would be extremely positive for equity markets
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