3 minute read

French Elections : Emmanuel Macron and the Stock Markets

A Fresh Face    3 minute read

French Elections : Emmanuel Macron and the Stock Markets

With 23% of the vote, Emmanuel Macron, formerly minister under François Hollande’s administration, will face Marine Le Pen, from the far-right Front National, who gathered 22% in the final round of the French presidential election.

A Predictable Outcome

With the Brexit and Trump’s election, the rise of populism is not to be taken lightly. The latter has shown how predicted outcomes might be mistaken. Nonetheless, the evidence lead to the belief that Emmanuel Macron will be the next President of the French Republic.

The history of previous French elections has shown that whenever the far-right make it to the second round, other voters rally their votes for what they see as the least unpleasant option. In 2002, Jean-Marie Le Pen from FN made it to the second round with 17%, facing Jacques Chirac, who had gathered 20%. Le Pen lost in the second round with only 20%.

As of today, most of the first-round candidates have already indicated their will to vote for Emmanuel Macron, inviting their followers to do the same. This includes François Fillon, who obtained 19% of votes.

If Macron Wins

The EU has been struggling to show consistent and sufficient signs of growth since 2008. The eurozone’s GDP has largely stagnated around 0.5% growth quarterly (besides the recent uptick) while US quarterly growth has fluctuated around 2%. This situation has favoured the rise of populism within many member countries where the will to exit EU has grown.

Nonetheless, the EU may be close to reaching the 2% inflation month to month mentioned by the ECB as being the targeted inflation leading to the end of their fiscal policy of low rates meant to boost the economy and the beginning of increases in interest rates.

At the political level, events of this first quarter were in line with pro-EU trends. In Netherlands, Mark Rutte’s party kept most of its parliamentary seats, showing a large advantage on Geert Wilders far-right party. In Germany, Angela Merkel has regained popularity making her favourite for the upcoming elections; reassuring even more that the eurosceptic AfD party would not be a threat.

These positive trends for the European Union includes the eurozone PMI rising above 56, its highest levels since 2011 – a very positive sign for markets. Emmanuel Macron becoming president would be a major win for the European Union and add to this positive momentum.

At a National Level

Among his propositions, those that will impact the markets the most are the following:

He wants to reduce taxes on dividends to boost investments and reduce corporate taxes to an level even with most other EU countries. From these reforms, one can expect growth in value and competitiveness, especially from large enterprises listed on the CAC40 and a rise in investment in equities.

Moreover, France is one of the few countries with a tax on wealth, called the ISF. The percentage of this tax amount depends on the value of one’s wealth. In his program, Emmanuel Macron wants equity holdings to be excluded from the calculation of wealth. This will make corporate investment more attractive. However, it will certainly slow down real estate investments that will remain as part of the ISF calculation

Globally, it appears that Emmanuel Macron’s reforms regarding corporates and the reaction expected from his election both tend to favour a positive trend within EU and French stock markets, supporting the positive perspective sustained by encouraging economic factors.

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