9 May 2017

France “En marche!”, but still waiting for 18 June

The result of the second round of the French presidential election is indisputable: victory has gone to a bold, young candidate, amid rejection of the traditionally dominant political parties. However, while the European political risk is behind us, French political risk will not dissipate until after the second round of the parliamentary elections, in 40 days’ time. Only then will we be able to measure the real capacity of the new President to govern and to instigate profound reform. At present, the political reality in France remains uncertain.


An analysis of the vote reveals some major trends:

  • In terms of the percentage of valid votes casts, Emmanuel Macron won the election hands down, with 66.06% compared to 33.94% for Marine Le Pen: in the absence of a “Republican Front” comparable to the all-party alliance against the far-right in 2002, the transfer of votes in the second round again functioned to block a Le Pen presidency.
  • However, despite this resounding victory, two factors mitigate the results: the abstention rate was extremely high (25.83%), while blank and spoiled ballots reached record levels of 6.34% and 2.24% respectively. So, Emmanuel Macron was elected with 20.7 million votes, or 43.63% of those registered to vote, versus 10.6 million, or 22.4% for his rival.

These figures illustrate the difficulty of predicting the results of the coming legislative elections, but they also point to some clear conclusions.

First, political conclusions:

  • Nothing is impossible: Mr Macron, in less than a year, has reached the pinnacle of the State. With 8.6 million votes in the 1st round, he will now have to build a presidential majority to impose his reforms.
  • The Front National continued its inroads into the French political landscape: with 7.6 million votes in the 1st round, it is ahead of the traditional “republican” right (7.2 million).
  • Finally, the collapse of the Socialist Party (2.2 million votes) and the rise of the hard-left “La France Insoumise” (France Unbowed) indicate that France is moving away from a two-party system to a four-party parliament.

So, like other European countries, a coalition of parties is likely to become the rule of government in Franc

Second, economic conclusions:

  • Attachment to the European project is now anchored in the DNA of an important fraction of the French population.
  • The “fracture sociale” (social divide) is reflected in the voting map: the Brexit referendum, the American elections and now the French elections must impel a rethink of globalization. The major brakes on growth (inequalities, ageing populations and high debt), and the major challenges of the future (ecological transition and digital revolution) were scarcely mentioned at all during this long campaign. However, if there is one central message that is clear from all these elections, it is the need to better share out the fruits of growth and to reduce inequalities.



  • Presentation of 577 candidates from Mr Macron’s “En marche!” (Onwards) movement for the parliamentary elections,
  • Appointment of the prime minister and the composition of the government after14 May, which will be crucial for the parliamentary elections,
  • The first steps in applying the broad lines of the President’s programme (labour market, tax, education, security, relations with the EU etc.) and their degree of acceptance by civil society,

In short, the celebrated first 100 days in office will only truly begin after the final parliamentary election on18 June!

Our fundamental prediction of a return to global economic growth is fully maintained, with a balance of risks that could become positive.

Beyond the challenges looming over the structural environment (durably low growth rates, high public and private debt), the prospects for growth are positive.

However, the hierarchy of risks is probably evolving:

  • with the result of these elections, European political risk is dissipating. it is even conceivable that we will see a “genuine” relaunch of the European project, which would contribute to amplifying the multiplier effects of world trade;
  • the protectionist risk, especially from the United States, has also lessened in the immediate term;
  • without doubt, the biggest risk now is financial instability. In fact, the authorities of several countries (Australia, China etc.) have recently recognized this risk, and we can expect continued tightening of financial conditions in the countries furthest advanced in the cycle, in particular the United States.



The victory of Emmanuel Macron in the 2nd round of the French presidential elections came as no surprise to the financial markets. The markets had largely factored in the victory of the “En Marche” candidate since the results of the 1st round, and the fears of a populist party acceding to the highest power in the French State and of France leaving the eurozone had already dissipated.

For example, equity markets rose by 7 to 8% in Europe between the two rounds, and the France-Germany sovereign bond spread narrowed by 25 bps, returning to the levels of late 2016, while the euro rose against the dollar, to a maximum of 1.10 on 5 May.

On opening on 8 May, the European markets were calm, with little movement and low volumes. In some cases, a degree of profit-taking seems to be at work.

At present, we are expecting a slowing of the boost that had been given to markets over the last two weeks, and possibly even a slight breather, given the levels of performance achieved. We are not anticipating a reversal of trends, since the fundamentals are still pointing in the right direction, and the latest published company financial results are favourable. We are maintaining our positive fundamental prediction for risk assets.

In this context, we are preserving our preference for equity over fixed income assets in our portfolios. In the fixed income markets, we are maintaining our under-exposure to sovereign debt and our preference for private debt.  Nevertheless, we are making some tactical adjustments, in view of the very strong performance in certain market segments over the last few days, mainly in private debts.sous-exposition sur les dettes souveraines, leur préférant toujours les dettes privées.  Nous procédons néanmoins à quelques ajustements tactiques compte tenu des très fortes performances de ces derniers jours sur certains segments de marchés.


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