Why the French Election Could Be Good for Renault, BNP Paribas, and Oil Giant Total
High-profile, anti-euro, anti-immigration Marine Le Pen is unlikely to win the presidency. That’s good news for French stocks.
By Vito J. Racanelli
Charles Lichfield, an analyst at political risk consultancy Eurasia Group, expects Fillon to win; he gives Le Pen a 30% shot at taking the presidency. She will probably make it to the second round, he says, but then lose. (Roundtable member Felix Zulauf has a different take on the election; see the cover story.)
British and U.S. polls got it notoriously wrong last year because a few percentage points made a difference, Lichfield says. In France, “you’d have to be 20 points off” for a Le Pen win, he adds.
In any runoff between the two, voters on the left will hold their noses and vote for the Republican, just as they did in 2002, notes Jean François Comte, co-president of Lutetia Capital, headquartered in Paris. “You still have 75% of the French people who find the far right unfit,” he says.
In 2002, Republican Jacques Chirac defeated Jean-Marie Le Pen, the National Front founder (and father of Marine Le Pen), who surprised everyone by making it to the second round. The Socialists then urged their voters to switch to Chirac, who won in the runoff.
Another important candidate for the French presidency is Emmanuel Macron, 39, a center-left independent from his own party, En Marche. This former economics minister and investment banker has gained popularity recently. He’s polling about 14% to 18%, and some believe that he could dislodge Le Pen and make it to the second round against Fillon. That would be a pro-market scenario, too. Others include radical-left independent candidate Jean-Luc Mélenchon, 65. Polls have given him a double-digit percentage portion of the vote.
THE FRENCH STOCK MARKET has rallied since the election of Donald J. Trump as U.S. president. Even so, the CAC 40, at 4922, is below recent highs, and remains substantially below its 2007 and 2000 highs, unlike the Standard & Poor’s 500 index.
A Fillon victory shouldn’t get investors overly excited. While he is the best candidate for France’s economy, Danny Van Quaethem, a Ghent, Belgium–based portfolio manager with Société Générale Private Banking, says the next French president will be constrained by a government budget deficit that is likely to be over 3% of gross domestic product and total government debt that is nearly 100% of GDP.
Jean-Charles Mériaux, chief investment officer of DNCA Finance, concurs. But even if the “French Thatcher,” as Fillon is dubbed, “realizes only 50%” of what he wants to do, it would be good for the economy and for stocks. “With Le Pen, capital will flow out of France. Fillon would bring back capital,” he says.
Audrey Kaplan, co-head of International equity at Federated Investors, says France looks more attractive than it did six months ago. Last June, just 25% of industry analysts were revising higher their 24 month forward-earnings forecasts for French stocks. Now, nearly 50% are.
A lower euro helps, but it also suggests that analysts are more confident of growth. Broad economic measures have improved in Europe in general, also. “The European recovery is genuine,” she says.
Predicting elections is a risky business, but the stars seem aligned for a Fillon victory—or at least a Le Pen loss.
After surprise populist electoral victories in the United Kingdom and the U.S. last year, the anti-euro, anti-immigrant National Front candidate Marine Le Pen, 48, could win the French presidency this spring, some investors fear. That prospect would depress a rallying French stock market and encourage capital flight.
With at least five major candidates, however, it’s likely that voters will give the nod to the center-right Republican candidate François Fillon, a 62-year-old former prime minister with pro-business bona fides, at least by French standards.
Fillon proposes, among other things, to cut civil-service jobs by about 10%, or 500,000, and make the highly regulated French workweek more flexible. He also wants to reduce taxes and government debt. His election would be positive for local stocks, at least at first.