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. Macron, a first-time candidate and independent, is expected to defeat Le Pen by a wide margin with 62% of the vote according to a snap Ipsos poll for France Television.
Here’s a look at how investors are breaking down the implications of this first round of vote.
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.
If Macron becomes France’s next president, he may struggle to implement his agenda without a stable parliamentary majority.
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 near future, which should lead to much reduced risk on French Stocks and Bonds and therefore boost prices of all European risk assets in the next few weeks.
Citigroup Inc. strategists said in a note that the European banking sector is likely to benefit from the lower political risk premium and narrower sovereign spreads following the “risk-on” outcome. Citi also expects international investors, particularly in the U.S., to return to European equities.
French banks could outperform by about 10% 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.
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 CAC 40 Index from performing well on an absolute basis in 2017. The CAC 40 is up 4.1% this year, on pace for a third year of gains.