Article

The national election in France has always been a focal point for political analysts, economists, and investors alike. The 2024 election is no exception, with significant attention being directed towards the policies and potential impact of the two leading candidates: Marine Le Pen of the National Rally (often referred to simply as “The National”) and the incumbent President Emmanuel Macron. As exit polls suggest a lead for Le Pen, investors are keenly observing the potential implications for both the French and broader European markets.

Marine Le Pen and The National Rally

Marine Le Pen, leading the National Rally, has been a controversial figure in European politics. Her party’s platform includes several policies that could have profound effects on the French economy and its relationship with the European Union (EU). Key aspects of her agenda include:

• Economic Protectionism: Le Pen advocates for a “France-first” approach, which involves increasing tariffs on imports, supporting local industries, and reducing France’s dependency on foreign goods. This protectionist stance could lead to increased costs for businesses reliant on international trade.
• EU Skepticism: While not advocating for a complete exit from the EU, as in past campaigns, Le Pen proposes renegotiating France’s role within the EU, aiming for more national sovereignty. This includes potential conflicts with EU regulations and trade agreements.
• Social Welfare Expansion: The National Rally’s policies also include significant expansions in social welfare programs aimed at supporting the French working class. While popular among voters, these policies could increase government spending and potentially lead to higher taxes or increased national debt.

Emmanuel Macron and His Policies

Emmanuel Macron, seeking re-election, represents continuity and stability for the French and European markets. His policies focus on economic reforms, digital transformation, and maintaining strong ties within the EU. Key elements of Macron’s platform include:

• Pro-EU Stance: Macron is a staunch supporter of the European Union and advocates for deeper integration within the bloc. His policies aim to strengthen France’s position in the EU and ensure stability within the Eurozone.
• Economic Liberalization: Macron’s economic policies include reforming the labour market, reducing bureaucracy, and encouraging innovation and entrepreneurship. These measures are designed to boost economic growth and make France more competitive on the global stage.
• Green Economy Transition: Macron emphasises the importance of transitioning to a green economy with investments in renewable energy, sustainable agriculture, and green technology. This focus aims to position France as a leader in combating climate change while creating new economic opportunities.

Impact on the Euro

The Euro has been sensitive to the developments in the French election. The potential for a Le Pen/ The National victory has caused fluctuations in the currency market, with investors wary of the uncertainty surrounding her policies. Historically, the Euro tends to weaken when there’s political uncertainty or a potential shift away from EU integration, as seen in previous elections and referendums across Europe.

If Le Pen wins, we can expect further volatility in the Euro as markets react to her policy implementations and any ensuing negotiations with the EU. Conversely, a Macron victory would likely stabilise the Euro, reinforcing confidence in the continuity of current economic policies and EU relations.

Impact on the EU

Le Pen’s potential presidency could disrupt the EU’s cohesion, given her Eurosceptic stance. This might lead to tensions between France and other EU member states, particularly concerning regulatory and trade agreements. Such discord could slow down EU policy-making processes and create a less predictable business environment within the bloc. On the other hand, Macron’s re-election would likely bolster the EU’s unity and drive forward integration initiatives, benefiting markets through increased stability and cooperation.

Implications for UK Investors

UK investors need to pay close attention to the French election results due to the interconnected nature of European markets. Key implications include:

• Currency Fluctuations: The value of the Euro will directly impact investments in Euro-denominated assets. A weaker Euro could benefit UK exporters to the Eurozone but could also decrease the value of Euro-based investments.
• Trade Policies: Changes in France’s trade policies, especially under Le Pen’s protectionist approach, could affect UK businesses operating in or exporting to France. This could lead to increased costs and complexities in cross-border trade.
• Market Volatility: Political uncertainty tends to increase market volatility. UK investors should prepare for potential short-term fluctuations in stock markets and consider strategies to mitigate risks, such as diversification and hedging.

Best Moves for UK Investors

1. Diversification: Spread investments across different sectors and geographies to mitigate risks associated with political instability in France.
2. Hedging: Use currency hedging strategies to protect against potential Euro depreciation.
3. Safe Haven Assets: Consider increasing allocations in safe-haven assets like gold or government bonds, which tend to perform well during periods of uncertainty.

AP Photo/Gerald Herbert

Sectors to Watch

Sectors Likely to Benefit:

• Defence and Security: Increased spending on national security under Le Pen could benefit defence contractors and security firms.
• Energy: Macron’s push for green energy might boost renewable energy companies and those involved in sustainable technologies.

Sectors Likely to Be Negatively Influenced:

• Automotive: The National’s protectionist policies could harm car manufacturers reliant on global supply chains.
• Finance: Banks and financial institutions might face increased volatility and regulatory uncertainty under a Le Pen presidency.

Real Assets as Protection

Investing in real assets, such as real estate and commodities, can provide a hedge against geopolitical instability. These assets often retain value better during times of political uncertainty and inflation. Real estate, in particular, offers tangible value and can generate steady income, making it a reliable investment in volatile times.

The national election represents a critical juncture for France and its role in the EU. Investors should closely monitor the developments and prepare for potential impacts on the Euro and market dynamics. Whether it’s Le Pen’s protectionist policies or Macron’s pro-EU stance, the outcome will undoubtedly shape the economic landscape in Europe and beyond. By staying informed and strategically adjusting their portfolios, UK investors can navigate the potential challenges and opportunities arising from this pivotal election.