European systemic risk is on the way to “disappear completely” with the outcome of this Sunday’s second round of voting in France’s election likely to lead to a victory of Emmanuel Macron, according to Amundi’s global head of research.
Philippe Ithurbide, global head of research, strategy and analysis at the largest European asset manager, said Macron is likely to be the next French president according to polls.
“If the polls are as accurate as in the first round, much of the uncertainty is lifted and we can now look at France and the French markets with a much lower risk premium, concentrating on the fundamentals. The economic situation is improving,” he wrote in a briefing published this morning.
He said risky assets had gained a renewed attraction both in France and the Eurozone and that Amundi, which is based in Paris, favoured these in its asset allocation.
Ithurbide said early polls indicated that Macron’s movement could obtain between 249 and 286 seats of deputies out of the 535 covered in a survey of voters after a May 3 TV debate between presidential candidates.
But also this morning, a victory by Marine Le Pen of the right-wing National Front rather than by Macron’s En Marche! party was described as a “nightmare for markets”, should it happen.
Thomas Nilsson, of Nordic bank SEB, said: “For the markets, a Le Pen victory would be a nightmare, followed by a long period of uncertainty. The main reason is Le Pen’s ambition for France to leave the euro, which would in all likelihood mean the end of the currency and probably the entire Union in its current form.”
The euro would survive in theory without France, he said, but in practise it would not work.
“A French switch to a significantly weaker franc would make it virtually impossible for other southern European nations to continue to share a currency with a dominating Germany. The fact that the markets already think this is a done deal indicates that initial reactions if an upset where to happen would be profound.”
Should Le Pen win, expect major downturns on stock markets both in and outside Europe with banks hit the hardest, he said – and added that these initial reactions would not be short-lived, as was the case following Donald Trump’s victory.
However, Nilsson also noted that this would not be “the end of the story”.
He said: “If Macron stays clearly ahead of Le Pen in opinion polls, the focus will shift to the third round of the presidential election, the June parliamentary election. A French president is strong only if he or she has majority support in parliament, so political manoeuvring and deal making after that election will be vital to the new president.”
The second round of elections take place Sunday, May 7, and are seen as a dual between Macron and Le Pen.
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