{"id":62843,"date":"2017-05-09T01:12:10","date_gmt":"2017-05-08T23:12:10","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/french-election-2017-markets-march-on\/"},"modified":"2019-12-31T01:55:23","modified_gmt":"2019-12-31T00:55:23","slug":"french-election-2017-markets-march-on","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/french-election-2017-markets-march-on\/","title":{"rendered":"French election 2017: Markets march on"},"content":{"rendered":"

Emmanuel Macron\u2019s victory over anti-euro leader Marine Le Pen in the French presidential election
\nremoves some of the political risk that had weighed on financial markets so far this year. The centrist
\ncandidate\u2019s victory is seen as a positive for European stability, something which supports the global
\nreflation trend that has been building up since last summer. Economic data in Europe, Asia and the US
\nhas been improving, underpinning traditional risk assets, such as stocks, and high yield and emerging
\nmarket bonds. However, today\u2019s post-French election market reaction was muted as the result had been
\nwidely anticipated. This is what Legg Mason\u2019s portfolio managers say:<\/strong><\/p>\n

Martin Currie, Michael Browne, portfolio manager:<\/strong> After Macron’s decisive victory, there will be a
\nhuge sigh of relief from Brussels and the establishment. But there are huge steps to be taken before he
\ncan push through his agenda of de-regulation and social protection. The market’s reaction has been one
\nof relief. The threat posed by the right and left to the French and European economy, has rescinded for
\nanother 5 years. If anything this election has masked the real and accelerating momentum in the
\nEuropean economy. Company results and sales have improved faster than expected, optimism
\ncontinues to rise as does employment. The European Central Bank remains on hold, correctly realising
\ninflation is currently cost-push not demand-pull. A removal of negative interest rates would be a
\nsubstantial positive and is still years away. We have shifted our focus away from the exporters which
\nhave led the recovery, to the European cyclicals. Normally when data gets this good, Europe finds a way
\nto derail it. Whilst there is still the German, UK and possibly Italian election to contend with, the election
\nin France was always going to be the real danger.<\/p>\n

Brandywine Global:<\/strong> Macron\u2019s victory was the best
\ncase scenario for Brandywine Global, as we were
\ncomfortable with his background in investment banking
\nand ministry position. He will likely adopt pro-business
\npolicies to attract investment flows into France while
\nalso pursuing progressive policies. However, as a
\npolitical outsider, he will have to build a grand coalition
\nin the same vein as Germany in order for parliament to
\npass his ambitious agenda. Macron\u2019s victory should sustain the risk rally. We also think that safe-haven
\nyields, like Japanese Government Bonds, German bunds, and U.S. Treasuries, will start to rise. We
\nbelieve French yields could trend sideways or possibly higher based on eurozone growth and inflation
\nexpectations; regional manufacturing, as measured by Purchasing Manager Index (PMI) reports,
\nshowed strong results ahead of the election. If all else remains equal, Macron\u2019s presidency should also
\npave the way for the European Central Bank (ECB) to taper asset purchases later this year, and
\ngenerally pursue tighter monetary policies. Once the European election season is over, market and
\neconomic forces should no longer be held captive by political forces.
\n[\"french_and_italian_spreads_fell_after_le_pen_s_victory_chances_dropped_after_the_1st_round.jpg\"->http:\/\/www.next-finance.net\/IMG\/jpg\/french_and_italian_spreads_fell_after_le_pen_s_victory_chances_dropped_after_the_1st_round.jpg]\n

RARE Infrastructure:<\/strong> In the lead up to the run-off election, RARE\u2019s base case assumption was a
\nMacron victory. With one of the largest European political risk events mitigated, we expect to see
\npositive returns for French assets and investors switching their focus back to fundamentals. Within
\nEurope, RARE continues to see attractive long-term opportunities in listed infrastructure. Fundamental
\nperformance remains strong with favourable operating conditions and good cash flow generation. We
\nexpect the continued quantitative easing by the European Central Bank to support economic growth in
\nthe medium-term (solid but unexciting growth), which in turn supports the valuations of economically
\nsensitive securities, namely toll roads, airports and rail stocks. Market attention will now turn to next
\nmonth\u2019s legislative elections as this will determine whether Macron has the parliamentary support to see
\nthrough campaign promises.<\/p>\n

Western Asset. Andrew Belshaw, Head of Investments.<\/strong> London The result is in line with the polls,
\nand what they have been consistently pointing to for the last 3 months. Consequently, the market
\nreaction has been muted, with French spreads to Bunds marginally wider this morning. Attention now
\nswitches to the French Assembly elections in June and whether or not En Marche can not only become
\nthe largest party but secure a majority.
\n