‘It would be seismic, bigger than Trump or Brexit for markets, if Le Pen got into office and called into question the euro itself’
“It would be seismic, bigger than Trump or Brexit for markets, if Le Pen got into office and called into question the euro itself,”
..Ms. Le Pen has vowed to take France out of the euro and bring back the franc, which could cause the country to default on its debt while questioning the viability of weaker eurozone economies such as Spain and Italy.
.. French banks are seen as particularly vulnerable in the event of a political shock.
..If Ms. Le Pen is elected, “you cannot imagine a German or Italian insurance company would keep their [money] in France,” given the risk to the euro,
.. Foreign-based investors own a large share of French debt, holding around 60% of government bonds. If they flee France, borrowing costs would likely climb, hitting French companies and the wider economy
.. Investors would instead likely move money back into U.S. stocks and bonds, he said.
.. The eurozone is currently investors’ favorite region for equities, with France the second most popular market in the region, according to Bank of America Merrill Lynch’s April survey of fund managers. In the last month, the rotation out of U.S. stocks into eurozone equities was among the largest since 1999.
.. “People are more optimistic about European equities than any time since the crisis,”
.. analysts predict a roughly 5%-10% fall in eurozone equities in the event of a Le Pen victory.
.. investors point to several major hurdles between Ms. Le Pen’s election and a so-called Frexit. She would need support from the French prime minister to call a referendum on euro membership, which is unlikely unless she also wins a parliamentary majority. Around two-thirds of the French population still supports the euro.
.. If a mainstream French candidate is elected, European stocks could be poised for big gains, given recent improvements in the European economy and corporate earnings.“There’s pent-up demand for European assets,” said Mislav Matejka, equity strategist at
J.P. Morgan . If the French elections don’t result in a disruptive outcome, “this is the year for European equities,” he said.