- On 23 April Emmanuel Macron and Marine Le Pen went through to the second round of the French presidential election.
- The following day European stock markets rose sharply as the risk of France leaving the euro receded.
- Relief of this kind lifts sentiment, but it is best to be guided by the plan and not by one week’s mood.
On 23 April 2017 Emmanuel Macron and Marine Le Pen went through to the second round of the French presidential election. The following day European stock markets rose sharply as the risk of France leaving the euro receded. For the markets, the first round did not yet decide who would govern, but it ruled out some of the scenarios that caused most concern, and that information was enough to trigger a notable move.
In France, the president is elected in two rounds when no candidate wins an absolute majority in the first, so that the two with the most votes face each other again. Going through to the second round with particular candidates allowed investors and companies to narrow the range of possibilities, although the final result was still pending and could change the picture again. Between the two rounds, uncertainty narrows, but it does not disappear.
What was at stake
The two candidates had very different views on the EU and the euro. A French exit from the single currency would have meant a crisis of enormous consequences for all of Europe, which is why markets followed the election with particular attention. France is one of the continent’s largest economies and one of the pillars of European integration, so its course matters to all its partners.
For a Spanish company with customers, suppliers or investments in France, the question was not only political. A change of currency, trade rules or taxation would have had immediate effects on contracts, prices and financing. So although the decision lay with French voters, the result became first-rate economic information for the whole surrounding environment. That is why foreign election results are part of the regular monitoring of any company with international activity.
Why markets rise
Markets react to uncertainty: when a feared scenario becomes less likely, prices readjust, often quickly. Relief of this kind lifts sentiment, but on its own it does not change company fundamentals or settle the final result of the election. It is a reaction to the expectation of what may happen, not to an accomplished fact.
This explains why the movements are sometimes sharp and can be reversed just as easily. One day of gains does not guarantee the next, and anyone trying to buy or sell chasing such movements usually arrives late. What matters in the long run are company profits, growth and the state of interest rates, not the headline of a particular day. Prices reflect the mood of each moment, but business results end up correcting them.
Looking beyond the headline
Anyone with invested wealth should not make decisions based on one week’s mood. A well-diversified portfolio aligned with each person’s goals and horizon is designed precisely to absorb episodes like this, without the need to react to every political news item. Reviewing diversification calmly, when there is no pressure, is better than doing so in the midst of the noise.
For companies with activity in France, prudence suggests following developments and reviewing contracts and currency hedges, without treating the matter as closed too soon. This text is general information and not investment advice: each person must decide according to their own situation, with the help of an independent adviser if they see fit.
Calm, like volatility, is contagious; it is best to be guided by the plan.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
