The major worry on the horizon for the political elites in Europe has been the French Presidential election. The success of Marine Le Pen in ditching some of the more “controversial” policies of her father, has put her into the reckoning for the Head of State position in the second most powerful nation on that continent. Having been consistently dismissed by bien pensent class, the success of Brexit, and then Trump has forced a reconsideration, which has excited both fear and loathing in the corridors of power. The recent Dutch election, which showed a rise in support for Geert Wilders’ PVV party (+5 to 20 seats) versus the ruling VVD party’s 33 seats (-8), was nevertheless presented as a defeat for the PVV and led to a relief rally in markets. But the French election is a much bigger test, with far more wide-reaching implications possibly for the Continent as a whole. After all, a Le Pen victory could lead to a break-up of the EU, leaving Theresa May with no-one to negotiate Brexit with!
The first round of voting will be held on April 23, and if no one wins 50% or more of the vote, a second round is to be held on May 7th. Although there are 11 official candidates, the election is, in reality, a contest between Marine Le Pen and Emmanuel Macron, an “Independent Progressive”, (and former Investment banker), who has never held elected office. His support base appears to be young, urban globalists, in that regard, very similar to the supporters of both “Remain”, and Clinton. His rise has been helped by the scandal involving Francois Fillon, a more conservative, centrist career politician, who apparently used taxpayers money to pay his family to “work” for him. He appears in many ways to be the mirror image of Le Pen, Trump and all the “populists” that are now gaining ascendancy. While Le Pen attacks the EU, Globalisation, and Islamism, he does the opposite; the choice appears to be between the Status Quo (more European federalism and more multiculturalism) versus a radical departure from the consensus of the past 30 years. Polls consistently show that Le Pen would win the first round, but lose, regardless of who she faces, in the second, by a margin of around 62-38%, as all other parties are expected to rally against her. However, some polling, thus far kept secret, suggest Le Pen is doing better than the official numbers suggest, meaning that she may have enough momentum to actually win.
(For a full list of the runners and riders, see here).
Markets are already enthralled- French bonds, European equities, and the Euro are reacting to very twist and turn in polling data. This week, for example, the Euro rose to a 6 week high of above 1.08 to the Dollar as Macron was deemed the winner of the first Presidential debate (of three). The Interest rate premium of French over German bonds also narrowed as investors seemed to see reduced risks of a Euro break-up (for now). Not all are convinced, however; Saxo Bank’s head of macro analysis Christopher Dembik, believes we are headed for a 20% market fall if Le Pen wins, citing “uncertainty” over her economic policies- either the market is very overvalued, or he is exaggerating a tad. I shall leave readers to decide which…
The irony in all the wailing and gnashing of teeth is that prognosticators seem to be ignoring recent history. The market may indeed fall sharply on the news of Marine Le Pen’s victory, but they did so after Brexit AND Trump’s victories. Markets then “recovered” and went on to rally hard, as investors bought in aggressively- who is to say that won’t happen again? It seems that some of the predictions are more motivated by a desire for her not to win, rather than an objective appraisal of the consequences of her doing so. Making market calls on the back of political views is an exceptionally dangerous method of analysis- it is a form of Subjective Validation bias, more often called wishful thinking. Following expert opinion didn’t make money for investors in June 2016 or November 2016, and there is little reason to suppose it will do so in April 2017. Still, although the experts are often wrong, they are never in doubt…
Disclaimer
We do not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of reading any of our publications. You acknowledge that you use the information we provide at your own risk.
Our publications do not offer investment advice and nothing in them should be construed as investment advice. Our publications provide information and education for financial advisers who have the relevant expertise to make investment decisions without advice and is not intended for individual investors.
The information we publish has been obtained from or is based on sources that we believe to be accurate and complete. Where the information consists of pricing or performance data, the data contained therein has been obtained from company reports, financial reporting services, periodicals, and other sources believed reliable. Although reasonable care has been taken, we cannot guarantee the accuracy or completeness of any information we publish. Any opinions that we publish may be wrong and may change at any time. You should always carry out your own independent verification of facts and data before making any investment decisions.
The price of shares and investments and the income derived from them can go down as well as up, and investors may not get back the amount they invested.
Past performance is not necessarily a guide to future performance.