The first round of the French presidential election will be held on April 23. As we approach the election, the uncertainty over who will win has been unprecedented.
Prior to the election, Citywire Asia has gathered views from top investors regarding investment opportunities and the populism challenge within Europe ahead of the five-person race.
According to Monica Defend, head of global asset and Diego Franzin, head of European equities at Pioneer Investments, French elections may open up relative value opportunities in European equities.
'The positive earnings momentum for the European corporate sector and decent valuations support a positive assessment for the European equity market,' said the pair, adding that the French stock market has lagged since the start of the year due to the electoral risk.
Looking forward, the pair is considering three elements. 'France’s economy is highly exposed to the euro-area domestic demand and should benefit from the strong euro-area growth numbers.'
The French stock index's composition is more biased towards
companies with global rather than domestic exposure, so its reliance on French domestic issues is limited and could even benefit from a weaker Euro, said Defend and Franzin.
'Looking at the geographical reach of the CAC40 in terms of revenue, we find that the French market is truly global, particularly within the areas of information technology, healthcare and consumer discretionary.'
'The relief in the event of an anti-Euro party defeat could support a relative
recovery of French equity markets.'
For these reasons, the pair maintain a constructive outlook for European equities and rate the probability of a new Euro crisis as very low.
'Risks to our positive outlook include the high level of investors’ complacency and the risk-on attitude in the market.
'A temporary slowdown of macro momentum could, for example, trigger temporary corrections in the European stock market, as could a strong appreciation of the euro.
'This would be seen as an opportunity to add equity exposure at more attractive valuation levels, not to substantially modify our positive outlook for European Equities.'
Against the current backdrop in Europe, Keith Wade, chief economist & strategist at Schroders can see the populist policy trend already playing out in the US and UK.
'In Europe, populist parties are running in France, Germany and Italy, although there is a chance that the mainstream adopts some of the positions of the populists as we have seen in the UK,' said Wade.
'Looking beyond the US and Europe, Asia remains relatively free of populist influence. While the West may become more protectionist, the East, led by
communist China, could become the champion of free trade.'
Wade said that populist policies appear good for markets, which rallied following the Brexit and Donald Trump votes.
'Looking further ahead though, populist policies to restrict trade and migration are likely to lead to stagflation, an outcome that is not friendly for markets.'