This Sunday 10th of April will take place the first round of the French Presidential Elections, and on the 24th of April the second and final round. Will Emmanuel Macron be given five more years or will the French people send a new president to the Élysée Palace?
The other candidates to the presidential elections are: Marine Le Pen is the candidate for the ‘Rassemblement national’ (RN) party, the former ‘Front national’. The far-right Eric Zemmour heads the ‘Reconquête’ (‘Reconquest’) party, founded in April 2021 to fight the election. Valérie Pécresse, representing ‘Les Républicains,’ (LR) who was considered a leading contender to oppose Mr Macron. Jean-Luc Mélenchon, candidate for the left-wing ‘France insoumise’ or ‘France un-bowed’ party that he founded in 2016, he has been an education minister under former Prime Minister Lionel Jospin, and a member of the European Parliament and senator. Yannick Jadot, from The Greens, who was a leading Greenpeace activist until 2009, when he was elected to the European Parliament.
What are the effects of this election in the markets? We have asked the professionals in the industry:
Vicent Mortier, Group Chief Investment Officer at Amundi
France’s 2022 election cycle enters its final stretch amid rising geopolitical tensions, which have changed the campaign narrative. French voters will choose the president in a two-round election starting on 10 April, choosing from a list of 12 candidates approved by the Constitutional Court to run in the first round. Incumbent President Emmanuel Macron continues to lead in the polls, but has recently lost significant ground (26-27%).
Marine Le Pen (MLP) has risen significantly (22-23%) and Melenchon is now around 16-17%. The situation is very volatile and the percentage of undecided voters is unusually high at around 1/3. The turnout could be very low, which plays in favour of the far-left and far-right candidates. As of today, only two scenarios seem likely for the second round: Macron/MLP or Macron/Melenchon.
Despite their ideological differences and divergent policies, the main candidates must address the same agenda items. First, the need to protect and increase the purchasing power of low- and middle-income households, which has been eroded by rising inflation (in particular food and energy prices) and increased uncertainty due to the war in Ukraine. The pension system is another point of discussion at the centre of the electoral debate, along with the need to rebuild French industrial capacities, and to ensure a smooth energy transition. Last but not least, identity and security issues are also a key area of divergence.
In view of the latest polls for the second round (24 April), Macron is still ahead, but the gap with MLP is narrowing. MLP would have a much better chance of winning (against Macron) than Melenchon. If MLP wins, a broad right-wing coalition would be likely (the only way to get a majority in parliament). But with what programme? MLP is a sovereigntist candidate, this is its political DNA. Initially, foreign investors would naturally be concerned about the consequences for public finances, foreign policy, social stability or even EU cohesion. Investors have so far focused on the consequences of the war in Ukraine and have not yet considered a political change in France. This could, on the one hand, lead to a widening of the spread on French (and other peripheral countries’) sovereign bonds and, on the other hand, exacerbate the downward pressure on the euro.
Until now, markets believed that a Macron victory (continuity) was the most likely scenario, with a small premium over alternative scenarios. However, Ms Le Pen’s recent surge in the polls has started to widen the spread of French OATs against German Bunds and weigh on the euro. Obviously, a phase of volatility in the markets between the two rounds should not be excluded if the difference between the candidates is small. However, we remain convinced that pragmatism will prevail in the end and that these elections will not be disruptive for the markets.
In fact, unlike in 2017, it is worth remembering that no candidate is suggesting a French exit from the eurozone (a “Frexit”). Therefore, in terms of investment convictions, no major changes in positions have been implemented ahead of the elections, as the strong forces at play are diverting traders’ attention away from the political scenario itself.
The tail risk scenario would be a Melenchon victory (much less likely than an MLP victory). His programme is “far” left and potentially very disruptive, as it involves much more than a few nationalisations. It could also unite the entire left and part of the far right in the parliamentary elections. This would be a very bad outcome for markets, with serious adverse consequences for OATs, with spreads expected to widen sharply and French equities to suffer a sharp sell-off. This negative outcome would also weigh on corporate credit, and on the euro.
Hywel Franklin, Head of European Equities at Mirabaud Asset Management
As France reflect on the last 5 years under the leadership of President Emmanuel Macron, France is heading to the polls this month, with incumbent President Emmanuel Macron the favourite to win a second term in the Élysée Palace.
After this Sunday’s presidential election first round, Macron is likely to face off once again against far-right candidate Marine Le Pen in the 24 April runoff – a replay of the 2017 final round, which resulted in an overwhelming victory for Macron.
While the business-friendly Macron is currently expected to emerge victorious, Le Pen has narrowed the gap in the polls in recent weeks. Should Le Pen emulate the surprise victories of Brexit and Donald Trump, it is likely to further unsettle investors in what has already been a severely turbulent 2022 for markets.
The differences between the candidates are stark in many areas, as evidenced by the stances towards renewable energy. While Macron has outlined plans for significant investment in solar and wind power, Le Pen has previously vowed to take down the country’s wind turbines.
While markets have exhibited periods of sharp volatility over the course of Macron’s five-year term, his presidency has been largely positive for stocks, with the French equity market outperforming most European peers over the period.
We have an overweight position in France relative to our benchmark in both our strategies and continue to identify a range of appealing innovative opportunities. We believe many of the country’s cutting-edge companies are poised to continue prospering irrespective of the election result, with business models aligned to powerful long-term global trends like decarbonisation.
François Cabau, Senior Eurozone Economist Macro Research – Core Investments at AXA IM and Hugo Le Damany, Eurozone Economist Macro Research – Core Investments at AXA IM
Despite increased political fragmentation, polls suggest France is likely to re-elect President Emmanuel Macron for another term. Turnout and live TV debate in between the two rounds will be key.
Uncertainty runs high for the subsequent parliamentary elections in June. While an opposition led parliament is unlikely, ad-hoc political compromise may be needed, complicating policy making. Concerns over purchasing power are rising and are likely to get worse before they improve, even with candidates’ proposals. The campaign has missed an opportunity to question the overall role of State.
Current polls suggest the most likely scenario is unlikely to rock markets and France’s growth is likely to outperform Eurozone peers. Despite ECB monetary policy normalisation, reinvestments should continue to provide support to French bond market.