European espresso: Initial French election results see a small bounce for risk assets
As part of our Espresso series, providing an expert blend of views on European equities, Portfolio Manager Jamie Ross discusses the short-term impact on European and French stocks of the first round of the French parliamentary elections.
4 minute watch
Key takeaways:
- The first round of initial French parliamentary election results aligned with predictions, showing the National Rally party leading, but unlikely to secure an outright majority.
- National Rally have toned down quite a lot of their rhetoric around policy in recent weeks. That is a positive if they end up being a major part of the parliamentary power.
- With only a small bounce in French assets there could be some opportunities for stock picking going forward.
So we’ve now had the results of the first round of the French parliamentary elections. The results look to us like they have come in roughly in line with the poll. So we’ve seen National Rally with 33 to 34 per cent of the vote, the New Popular Front with around 28 to 29 per cent of the vote, the Centrist Alliance probably 20 to 22 per cent of the vote.
Now what that means is that it is: a) unlikely that the really market unfriendly outcome of a better-than-expected showing from the left has been averted. And it also means that National Rally are unlikely, as suggested by the current share of vote, to attain a majority.
Those would have been the two most market unfriendly outcomes. So it is, at the moment, a small positive for French risk assets and we can see that reflected in how the euro and how French equities – and in particular French banks – are trading this morning (Monday 1 July 2024).
Two more subtle positives that we would raise: firstly, National Rally have actually toned down quite a lot of their rhetoric around policy in recent weeks. That is a positive if they end up, as looks likely, being a major part of the parliamentary power. The second thing is that, going into the second round of votes on the parliamentary election, Jean-Luc Mélenchon, the New Popular Front figurehead, has made it very clear that they will be withdrawing any candidates that are in third place in any particular constituency. So what that means is that it makes it, in theory, less likely that National Rally are able to gain the majority in the second round of voting, which again would be a negative outcome for French risk assets.
As I said, in the short term this is positive for those things that were badly impacted by the snap election being called by Macron in the first place. As a team, we generally cut French exposure initially when Macron called the snap election. And arguably today, with only a small bounce in French assets there could be some opportunities for stock picking going forward, so we’ll be having a close look at that.
—–
Risk assets: Financial securities that may be subject to significant price movements (ie. carrying a greater degree of risk). Examples include equities, commodities, property lower-quality bonds or some currencies.
JHI
Please note: Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
Marketing Communication.
Important information
Please read the following important information regarding funds related to this article.
- If a Company's portfolio is concentrated towards a particular country or geographical region, the investment carries greater risk than a portfolio that is diversified across more countries.
- The Company may have a particularly concentrated portfolio (low number of holdings) relative to its investment universe - an adverse event impacting only a small number of holdings can create significant volatility or losses for the Company.
- Where the Company invests in assets that are denominated in currencies other than the base currency, the currency exchange rate movements may cause the value of investments to fall as well as rise.
- This Company is suitable to be used as one component of several within a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested in this Company.
- Active management techniques that have worked well in normal market conditions could prove ineffective or negative for performance at other times.
- The Company could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Company.
- Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
- The return on your investment is directly related to the prevailing market price of the Company's shares, which will trade at a varying discount (or premium) relative to the value of the underlying assets of the Company. As a result, losses (or gains) may be higher or lower than those of the Company's assets.
- The Company may use gearing (borrowing to invest) as part of its investment strategy. If the Company utilises its ability to gear, the profits and losses incurred by the Company can be greater than those of a Company that does not use gearing.
Specific risks
4 minute watch
Key takeaways:
- The first round of initial French parliamentary election results aligned with predictions, showing the National Rally party leading, but unlikely to secure an outright majority.
- National Rally have toned down quite a lot of their rhetoric around policy in recent weeks. That is a positive if they end up being a major part of the parliamentary power.
- With only a small bounce in French assets there could be some opportunities for stock picking going forward.