An Equity Guide to Le Pen: Winners and Losers If She Prevails

How Marine Le Pen Took Control of the Far Right

After a relief rally fueled by polls projecting an easy victory for French presidential candidate Emmanuel Macron, a win for his anti-euro rival Marine Le Pen would likely rock equity markets that are already pricing out risks to the region’s stability.

With the poll margin wider than for the Brexit referendum and the U.S. election, such an improbable win for Le Pen could lead to losers and bigger losers in the immediate aftermath, analysts and money managers warn. Markets would also see a resurgence in volatility.

“The difficulty with the victory of Le Pen is that the political risk would increase quite dramatically so all the high-beta sectors will suffer,” said Vincent Durel, a Paris-based portfolio manager at Fidelity International, referring to shares deemed most sensitive to market swings. His firm oversees $294 billion globally excluding the U.S. “The defensive stocks may benefit -- in relative terms because I think they will all go down in absolute terms.”

Polls are showing Macron ahead by about 20 points. A wide margin of respondents in a snap survey also said he won Wednesday’s debate, an especially brutal exchange between the two candidates. The CAC 40 Index jumped 1 percent to a nine-year high as of 4:09 p.m. in Paris.

Click here for an equity guide to Macron.

With most analysts predicting an equity plunge across the board if Le Pen prevails in Sunday’s runoff, here’s a round-up of stocks and other assets that will be particularly affected.

WINNERS:

Defense

Le Pen advocates raising France’s defense spending to 3 percent of gross domestic product by 2022 -- compared with Macron’s proposal for 2 percent -- and enlarging police and security forces. Higher expenditure would boost the sector, and a weaker euro could aid commercial aerospace stocks, according to Citigroup Inc.

Nuclear and Coal

Le Pen proposes a multi-billion euro plan to re-fit France’s nuclear plants -- a stark contrast with plans by both Macron and the current administration to reduce reliance. Still, any benefit for Electricite de France SA -- the state-controlled utility that monopolizes nuclear production in the nation -- would be offset by her plans to pull EDF out of the U.K.’s Hinkley Point nuclear project and potentially re-nationalize the firm, said Bloomberg Intelligence analysts Rob Barnett and Elchin Mammadov.

Her victory could also provide at least some short-term relief to Germany’s Uniper SE, which has coal plants in France since Macron has proposed a carbon tax, Mammadov said in an email.

Global Giants

Just as the post-Brexit plunge in the pound boosted the revenue of U.K.-listed global megacaps, a drop in the euro spurred by Le Pen’s win could be a boon to French counterparts. The CAC 40’s biggest names including LVMH Moet Hennessy Louis Vuitton SE, L’Oreal SA, Sanofi and Airbus SE have little exposure to the country’s economy. Its members on average get only about a quarter of their sales from France, data compiled by Bloomberg show.

Defensive Stocks

Shares deemed more immune to the economic cycle -- such as consumer staples and drugmakers -- could also be more resilient, analysts at Societe Generale SA led by Roland Kaloyan wrote in a note.

Tobacco, food and beverages, as well as health-care companies were among the more defensive sectors when peripheral bond spreads surged during the euro-zone debt crisis in 2012, UBS Group AG strategists wrote in a note.

LOSERS:

Banks

A Le Pen win could devastate regional banks, among the biggest gainers after the first round. A plunge in bond yields amid a scramble for haven assets would depress expectations for bank earnings. Her opposition to the euro would spark fears that in a worst-case scenario, France could pull out of the single currency, triggering its collapse and forcing banks to re-denominate their assets.

Concession Companies

Le Pen, with her call for “economic patriotism,” has championed nationalizing airports and highway operators. This would bode ill for concession firms such as Vinci SA, Eiffage SA and Spain’s Abertis Infraestructuras SA, which owns Sanef in France, according to Societe Generale.

Indebted Domestic Firms

French firms with large domestic exposure would suffer the most from heightened economic uncertainty upon a Le Pen victory. Those that have to repay large amounts of euro debt -- such as banks, real estate firms and utilities -- would also suffer from concerns of France returning to a potentially weaker national currency, according to UBS.

WHAT ELSE TO WATCH:

  • The euro is expected to slide if Le Pen wins, on concern the single currency will disintegrate. Volatility will surge. The dollar and yen may gain amid a rush to haven assets.
  • Spreads between German and French government bond yields may widen. 
  • Gold would potentially benefit as risk appetite shrinks drastically.
  • Italy, also seen as a hotbed for anti-euro, populist sentiment, could be particularly hurt by a Le Pen presidency. Its equities would likely slide, and bond spreads widen.
  • France’s credit default swap spreads could widen again versus Germany.
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