Schroders: Investors buoyed as Macron edges Le Pen in French election

The outsiders’ election 

The French public has sent a clear message to the political establishment: that it is fed up with a lack of choice and progress on offer. 
The Republican Party, which only a few months ago was thought to be the only choice for France following President François Hollande’s dismal poll ratings, was beaten into third place with just 19.9% of votes. Meanwhile, Hollande’s outgoing Socialists finished in fifth place with just 6.3% of votes – potentially spelling the end for the party. 
Former economy minister, Emmanuel Macron, finished in first place with 23.9%, ahead of far-right candidate Marine Le Pen with 21.4%, making him easily favourite for the second round due to be held on 7 May. Even had Macron finished behind Le Pen, he is widely expected to be most voters’ second preference. Indeed, polling shows that he commands a 30-point lead against Le Pen in a run-off contest. 

Boost for investors

For investors, the results are good news, highlighted by the over 2% rise in the euro against the US dollar since last week. At the time of writing, the CAC 40 index of French shares had risen around 3.5% on Monday morning, according to Bloomberg.
The centrist pro-European Macron will not only help stabilise the union, but also help build stronger support mechanisms. Compared to Le Pen, who wants to take France out of the euro, he is by far the preferred candidate. The campaigns will now pit the two lead candidates against one another, which we expect will mean a debate not along the usual left-right political debate, but based on inward vs. outward looking France. 
Le Pen will argue that globalisation has failed, and that France should seek to use protectionist policies to fight back against French workers being undercut. Macron will argue that globalisation and the EU have brought both economic and security benefits, and that anti-competitive measures are not the answer. He will instead argue for targeted reforms with help for those left behind. 
The contest is not over yet, but investors are likely to take comfort and to begin to think about the more attractive valuations that European equities offer – a market that has struggled to keep up with the global reflation trade due to political uncertainty. 

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