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Emmanuel Macron heading for victory in France’s presidential election should be a relief for investors worried that a Marine Le Pen win would roil European markets.
The euro, French bonds and shares from the nation’s banks are among the assets that should benefit from Macron’s likely win for a second term, according to money managers. The risk of a victory by far-right nationalist and euroskeptic Le Pen had been keeping investors on edge, with some predicting European assets could suffer a selloff comparable to the euro crisis or Brexit.
“European investors are partying after the French exit polls: a potential black Monday is definitely averted,” said Fabio Caldato, a partner at Olympia Wealth Management.
With counting still under way, projections by France’s five main pollsters put Macron on course to win about 58% of the vote in Sunday’s runoff compared with 42% for Le Pen. The nationalist leader conceded defeat in a speech to her supporters in Paris.
“In the short term, the main logical beneficiary of this election could be the euro,” said Frederic Leroux, member of the strategic investment committee at Carmignac Gestion. The currency rose as much as 0.6% against the dollar in early Sydney trading, before trimming its advance to about 0.1%.
Stocks from French banks like BNP Paribas SA and Societe Generale SA, which have been benefiting from tighter EU integration, are likely to react positively to Macron’s re-election. The 44-year-old president pledged to continue efforts to make France a cornerstone of a stronger, more integrated EU.
Shares from toll-road operators Vinci SA and Eiffage SA also should benefit as Le Pen’s had pledged to nationalize the country’s highways. Investors also say Macron’s win is a positive for Electricite de France SA and Engie SA, as well as other stocks with a big reliance on the French market, like construction company Bouygues SA.
French stocks and bonds had already been supported by polls showing a widening gap between the two contenders since the first round. Markets took comfort as politicians on the left and right gave support to Macron and as Le Pen failed to land a major blow in Wednesday’s debate.
Macron’s re-election doesn’t come as huge surprise to markets, but it should still be a relief, said Emmanuel Cau, head of European equity strategy at Barclays. He sees room for a “modest relief rally,” with the euro, France’s benchmark CAC 40 Index and shares of French banks benefiting the most.
While Le Pen had abandoned calls made as recently as 2017 to ditch the euro, she still advocated for a referendum on the constitution to make French law superior to EU rules. She wanted to restore permanent border controls in the Schengen zone, which would have contradict law in the bloc.
“Macron’s victory takes off the table one big risk at European Union level,” a positive given the range of other challenges markets face right now, including Chinese Covid-19 lockdowns, geopolitical risk and higher inflation, said Alexandre Baradez, chief market analyst at IG France. He said the CAC 40 Index could climb about 1% on Monday, barring bad news coming during Asian trading hours.
A Stock Trader’s Guide to French Elections: Winners and Losers
The challenge for Macron over the next five years will be to muster support for his plans to make the country more competitive by overhauling social policies such as pensions and improving the country’s economic fundamentals.
Investors are already turning their attention to legislative elections in June. Macron’s margin of victory was far narrower than last time, when he beat Le Pen by more than 30 points and the rise in support for her nationalist program reflects a bitterly divided country.
Although “French political risk will not disappear entirely, this hurdle has at least been passed,” said Michael Metcalfe, global head of macro strategy at State Street Global Markets. This leaves markets “to focus on the ECB and the implications of the ongoing conflict in Ukraine.”
(Updates with comments throughout.)
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