Centrist candidate Emmanuel Macron will be inaugurated as the next French president on 14 May, thanks to a clear win in the second-round runoff against the far-right candidate Marine Le Pen. The very young and pro-European Macron received 66% of the votes cast, more than suggested by recent polls, which had him gaining just above 60%.
The result is positive for markets in two ways. First and foremost, it eliminates the left-tail risk of the euroskeptic candidate Le Pen being elected, together with her pledge to call a referendum on France’s membership in the euro. Second, Macron’s higher-than-expected margin of victory raises the chances that his party, En Marche, will score well in the June parliamentary election. It is unclear whether the party will have an absolute majority of seats in the National Assembly, but even if it doesn’t, we expect it to find an agreement with enough MPs from other moderate parties to govern.
On a broader note, the election result in France, alongside the result of the Dutch election earlier in the year, represents a setback for the rise in anti-establishment feelings witnessed both in Europe and globally. Even so, we think investors should avoid being too complacent. Immediate risks have receded, but there remains a still fragile economic environment with political uncertainty in Europe over the medium term. As such, we continue to recommend caution in taking risk in the region, not least given fairly unattractive valuations in fixed income assets.
Nicola Mai is a PIMCO portfolio manager and leads sovereign credit research in Europe. Philippe Bodereau is a portfolio manager in London and global head of financial research. Eve Tournier is head of pan-European credit portfolio management.