Ernesto Ramos – Head of Equities, Senior Portfolio Manager at BMO Global Asset Management
May 8, 2017
Yesterday the French elected Emmanuel Macron as President who, at 39 years old, is the youngest leader of that country since Napoleon. Macron’s victory over his opponent Marine Le Pen was decisive, obtaining 66% of the vote to Le Pen’s 34%, albeit with a high 25% abstention rate.
The contrast between the candidates could not have been starker. Macron is for free trade, pro-business, pro-immigration, and a strong supporter of the European Union. On the other hand Le Pen views are almost exactly opposite: anti-establishment, populist, nationalistic, separatist, anti-immigrant, and anti-Euro.
Market reaction has been muted because his victory was largely expected; since he and Le Pen emerged victorious in the first round of voting held on April 24, Macron led polls by over 20%. Both the Euro and the CAC 40 had appreciated since April 24 so today we’re seeing a bit of profit taking with the CAC 40 down about 1% and the Euro down about 0.5%.
Going forward markets will fixate on his ability to govern since he doesn’t have an established party behind him. His choice of Prime Minister and parliamentary elections in June will be critical to his being able to form a coalition. The hope is that he will be able to push France and Europe to be more growth-oriented which should be good for European equities.
In our opinion, Macron’s victory also dims the prospects for other populist candidates in Europe and thus lowers overall political risks in Europe. Finally, it strengthens the cohesion of the EU and will make for tougher Brexit negotiations for the UK.