Article

French elections and Eurozone equities

July 2, 2024
Paul Jackson
Paul Jackson
Global Head of Asset Allocation Research
Uncommon truths

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The first round of French elections took place on 30 June 2024, with the second round due on 7 July. The surprise calling of the election had a detrimental effect on French and peripheral Eurozone bonds, Eurozone equities and the euro.

Markets fear an extreme outcome (either far-right or far-left) and bigger budget deficits (the 2023 5.5% deficit/GDP ratio has already started a corrective process with the EU). This, and general antagonism towards the EU at either end of the political spectrum, suggests a worsening of the relationship with the EU and perhaps a reversal of the EU project.  

Given the uncertainties about the outcome of the election, we consider a range of scenarios and conclude that the most likely is some form of temporary administrative solution that would be more reassuring for markets than an extreme outcome.

On this basis, we continue to like Eurozone equities on the basis of valuations and cyclical/structural considerations.   

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The optimal portfolios are theoretical and not real. We use optimisation processes to guide our allocations around “neutral” and within prescribed policy ranges based on our estimations of expected returns and using historical covariance information. This guides the allocation to global asset groups (equities, government bonds etc.), which is the most important level of decision. For Uncommon Truths, the optimal portfolios are constructed with a one-year horizon. 

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