France Election Turmoil: European Equities Amidst the Upheaval France Election Turmoil: European Equities Amidst the Upheaval France Election Turmoil: European Equities Amidst the Upheaval

France Election Turmoil: European Equities Amidst the Upheaval

Macro 5 minutes to read
Charu Chanana

Head of FX Strategy

Key points:

  • France is facing significant political upheaval as President Macron has called for a snap election
  • French stocks have slumped, with benchmark stock index CAC40 down 2.7% since Friday’s close and breaking below the long-term range low of 7,900. EuroStoxx 600 is also down 1.2%.
  • While political uncertainty poses risks, it can also offer strategic entry points for long-term investors.
  • European stocks are seeing tailwinds from growth rebound, ECB rate cut, cheaper valuation and better diversification.
  • Luxury brands are a key constituent of the French market, and offer exposure to a market that boasts of high growth, high margins, and a resilient business despite high inflation and economic uncertainty.

 

France is experiencing significant political upheaval, with calls for snap elections amid a fragmented political landscape after President Emmanuel Macron’s crushing defeat in the European Parliament election.

This move from Macron is seen as a significant risk, given that it brings the focus back on his perennial battle with far-right rival, Marine Le Pen.

What to expect from the French elections?

  • The election will take place over two rounds beginning June 30, and culminating on July 7.
  • Macron’s position as head of state is unlikely to be directly affected by the upcoming vote, but it could be a show of Le Pen’s growing popularity ahead of the 2027 presidential elections.
  • Macron may be betting on using the snap elections as a chance to question the increasing far-right move in Europe and re-establish a stronger, moderate majority. However, there are considerable risks that the move could backfire.
  • The outcome of the election could also impact Macron’s ability to push through legislation and his ability to pick a like-minded prime minister.

This adds to France’s deficit risks and concerns over a growing debt load which were brought to light by a credit rating downgrade from the S&P last months. Any attempts to rein in spending and borrowing could run into roadblocks amid a weakened government mandate.

 

Market reaction

Political instability is never a good thing for markets. Europe has remained at the centre of geopolitical concerns, and the increasing far-right popularity as well as French snap election risk has meant that investors may add a political risk premium to euro-zone assets.

French stocks have slumped, with benchmark stock index CAC40 down 2.7% since Friday’s close and breaking below the long-term range low of 7,900. Banks have led the losses, with yields in French bonds surging to the highest since November on rising fiscal concerns.

Source: Bloomberg. Note: Past performance does not guarantee future performance.

Investment implications

While political uncertainty poses risks, it can also offer strategic entry points for long-term investors. By focusing on promising sectors and employing robust risk management strategies, investors can navigate the current volatility and potentially benefit from the market's response to the upcoming elections.

As our Head of Equity Strategy, Peter Garnry, argues in this podcast, the overall European equity narrative remains unchanged for now despite these political jitters.

European equities may have lost on the technology revolution, but the market is more diversified and undervalued. European stocks also face tailwinds from a Eurozone growth rebound and the start of ECB rate cuts. The two biggest engines for the European market are its pharmaceutical industry as well as the luxury industry. In addition, the ongoing war in Ukraine, Middle East tensions and the prospect of a second Donald Trump presidency in the US have driven strong returns for European defence stocks.

French equities could face headwinds into the elections, but it is worth noting that only 15% of the revenues for the constituents of CAC40 are sourced within France. As such, French stock market is one that depends more heavily on global economic conditions.

France is home to several multinational corporations with global reach, such as LVMH (luxury goods), TotalEnergies (energy), and Airbus (aerospace). Investing in French stocks provides exposure to these companies and their international operations.

The luxury sector remains one of the most interesting ones in France, given its high growth, high margin, strong brand recognition, and a strong appeal among the consumer. There are several ways to gain exposure to the luxury market, as discussed in the article “Investing in Luxury”. The article talks about luxury sector ETF Amundi S&P Global Luxury UCITS ETF and its constituents, as well as the most popular luxury brands such as Louis Vuitton, Moët & Chandon and Givenchy (LVMH), Hermes, Tapestry (with brands such as Jimmy Choo, Versace, and Michael Kors), and others. At Saxo, we also have a Luxury Goods Equity Theme Basket which identifies several stocks that provide the best pure exposure to the global luxury market.

There are, however, key risks to consider when investing in French markets. Elevated political uncertainty or changes in political leadership could have implications for economy and markets. Foreign investors may also need to assess the impact of a potential weakness in euro on their investment returns relative to their home currency. Luxury stocks, in particular, are even more closely tied to global economic conditions given these are discretionary purchases. ESG risks are also worth considering, given that luxury companies are criticized for their environmental impact. Luxury stocks also usually have high valuations due to their high growth expectations.

 

Previous articles on European equities and Luxury stocks:

The investment case for European equities

European top innovators: R&D intensity drives returns

European equities: A rising phoenix or a continuous fall?

Luxury is a resilient growth industry in the age of inflation

Defence stocks will continue to be a winning theme

There is a new crown jewel in Europe as Novo Nordisk is booming

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.