Anti-Euro Le Pen’s Gain Spooks Overseas French Investors
By Adria Cimino – Apr 26, 2012 11:33 AM GMT+0100
Pierre Mouton, a fund manager at Notz Stucki & Cie. in Geneva, looks at the rise of anti- European, anti-austerity parties across the border in France with concern. It may keep him out of the country’s stock market.
“We’re cautious on French stocks,” Mouton, whose firm manages $7.5 billion and has been reducing its holdings in France, said in an interview. “If the new president breaks under pressure from these groups, stocks will suffer. We prefer not to take that risk.”
Marine Le Pen of the anti-euro, anti-immigrant National Front won 17.9 percent, while Communist Party-backed Jean-Luc Melenchon took 11.1 percent in the first round of the French elections on April 22. Socialist Francois Hollande, who got 28.6 percent, and President Nicolas Sarkozy, with 27.4 percent, will square off in the decisive second round on May 6.
The risk for investors is that the strong showing by the so-called extreme parties may influence the next president, making him reluctant to embrace policies needed to revamp the economy. France’s economy is slowing and its joblessness is at a 12-year high. With public debt at more than 85 percent of gross domestic product, France was stripped this year of its AAA rating by Standard & Poor’s.
“What is worrisome is the strength of the extreme parties, which say ‘no’ to Europe and ‘no’ to austerity,” Amelie de Montchalen, an economist at Exane BNP Paribas in Paris, said in an interview. “Outside of France, Le Pen is equated with leaving the euro zone, and Melenchon is seen as nationalizing banks. That’s not very positive for the stock market.”
France’s CAC 40 Index (CAC) is up 1.5 percent this year, lagging behind the Stoxx Europe 600 Index’s 4.7 percent gain. The French benchmark was down 0.9 percent to 3,205.88 at 12:26 p.m. in Paris.
About 42 percent of the CAC 40’s market value is held by non-residents, according to the Bank of France.
Amandine Gerard, president and fund manager at Financiere de l’Arc in Aix-en-Provence, France, which oversees $243 million in assets, said the rise of extreme parties may make stock market investors pause.
Votes for such parties “can worry international investors,” she said in an interview. “Whichever candidate is elected will have to take that into account.”
Philipp Musil, who helps manage about $10 billion at Semper Constantia Privatbank AG in Vienna, says the rise of such political parties worries him enough to stay away from French companies that depend on the domestic market.
“It makes the market more fragile and the market doesn’t like uncertainty,” he said in a telephone interview. “It will have a negative impact on French companies with mainly a domestic market. They will suffer.”
Musil said that while he would invest in French companies that have a large global presence, he may steer clear of those with most of their sales at home.
Some investors see the next president having very little room to maneuver. The ballot’s outcome won’t influence her investment strategy, said Valerie Cazaban, a fund manager at Stratege SA in Paris, with $105 million in assets.
Hollande will beat Sarkozy by 56 percent to 44 percent in the final round, according to surveys conducted after the first round by the polling companies CSA and Harris Interactive.
“The European Central Bank has more and more importance and countries have less room for national sovereignty,” she said in an interview. “If Hollande would break from the framework, he would quickly be reminded. I don’t think that Francois Hollande can revolutionize the French budget.”
Meanwhile, Le Pen advocates taking France out of the euro, tightening borders against immigration and pulling away from European treaties.
Melenchon’s proposals included a new constitution to found the Sixth Republic with more parliamentary powers and a 100 percent tax on annual income above 360,000 euros ($472,600).
De Montchalen said it will be important to note how Hollande and Sarkozy address the ideas of Le Pen and Melenchon ahead of the legislative elections on June 10 and 17.
The extent to which they are embraced will be a bellwether of the influence of such parties on economic policy and the composition of the future government, she wrote in a note with Chief Economist Pierre-Olivier Beffy.
“The market will test the winner of the election,” said Notz Stucki’s Mouton