French Presidential Election: Populist movement suffer a setback May 8, 2017

What happened?

Emmanuel Macron has won the French presidential election and will be inaugurated as France’s next president in the next 10 days. Leading through the polls, Emmanuel Macon successfully defeated Marine Le Pen from the National Front Party, by a margin of ~65% to ~35%.

Who is Emmanuel Macron and what does he stand for?

For starter, En Marche!, the political party that Macron started, is only less than a year old.

His ideology is more of a centralist, neither far-left nor far-right. He is pro-EU – he believes that France will be better off in the European Union (“EU”), but will push for a reform within the EU.

The youngest-ever president-elect pledged to unite the France people during one of the most divisive presidential election in the history of France. The following are his campaign promises:

  • Reduce budget deficit by cutting 120,000 public-sector jobs
  • Cut corporation tax from 33% currently to 25% and let companies renegotiate 35-hour working week policy
  • Promote deeper integration between Eurozone countries
  • Improve France’s complex pension system which involves 35 different public schemes
  • €50bn public investment plan which includes more focus on renewable energy

How will the market reaction?

The most important factor for a Macron win is his pro-EU stance. This will essentially deal a huge setback to the rising populist movement around the world. Markets should react positively to the news of status quo and the reduced risk of an EU breakup.

Euro currency has strengthened against the U.S. dollar, although the movement was less volatile than expected. The France CAC Index should rise when market open later today. The positivity should also spill over to Europe and we expect this to lift European markets as well.

Prior to the election we have already seen better sentiments reflected in the Purchase Manager’s Index (“PMI”). The Euro STOXX 50 index has also been gaining momentum on the upside.

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Possible Setback

A Macron win does not guarantee that he can elect his own government. President-elect Macron will have to ensure that he can get majority seats in the parliament in the upcoming France General Election in June this year. Failure to do so should spell possible headwind for Macron and his campaign promises, which in turn could dampen markets sentiment.

Tradable instrument:

DBXT E50 US$@ – (SGX:IH0)

The Fund seeks to track the performance of an index composed of 50 of the largest companies in the Eurozone.

iShares DJ Euro STOXX 50 – (LSE:EUE)

The Fund seeks to track the performance of an index composed of 50 of the largest companies in the Eurozone.

iShares MSCI France – (AMEX:EWQ)

The Fund seeks to track the performance of an index composed of companies from France.

About the author

Profile photo of Paul Chew

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has almost 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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