French equity markets have been largely subdued in the immediate aftermath of Sunday’s French presidential election run-off, confirming that Emmanuel Macron’s victory over Marine Le Pen had been widely priced in. The Lyxor CAC 40 UCITS ETF (Euronext: CAC) saw some profit taking to end Monday 8 May down 0.59%, reversing some of the 7.2% gains it has made since the first round of voting on 23 April.
French equity and bond markets were largely unchanged after the widely expected result which saw Emmanuel Macron receive 66% of the vote to win the French presidential election run-off.
Wei Li, head of iShares EMEA investment strategy, Blackrock, said: “ETP flows between the first and second rounds suggest that investors positioned portfolios for a Macron win after the first round, opting to make tweaks only once the win was confirmed.
“In the week following the first round alone we saw significant inflows of $3.6 billion into iShares European equities ETPs globally, $2.6bn of which was by US investors signalling they had started to follow EMEA investors.”
The Euro Stoxx 50 Volatility Index fell by 18% immediately after Macron’s victory to 14.06 and is now down by 45% from its recent high on 18 April. The index, similar in concept to the US-focused VIX Index, is a gauge of European market uncertainty measured by the implied volatility derived from option pricing on the blue-chip Euro Stoxx 50 Index.
The iShares France Govt Bond UCITS ETF (Euronext: IFRB) was largely unchanged on the day, down 0.01%. The spread between French government bonds and safehaven German bunds began tightening after the first round of voting, with IFRB gaining 0.57% in value between then and the run-off.
Morgane Delledonne, fixed income strategist at ETF securities, commented: “The French-German government bond spread already tightened to 42bps on Friday 5 May ahead of the results, from over 85bps prior to the first round, but still has some way to go to get back its pre-election level of around 30bps.”
The continuing gap seen in the government bond spread could represent ongoing uncertainty in the lead up to the French parliamentary elections on 11 and 18 June, which will determine Macron’s ability to form a government and deliver on election promises.
Delledonne said: “The next decisive step for France will be the parliamentary elections. The latest polls indicate Macron’s party “En Marche!” to be the first party at parliament followed by the Republicans. However, France and Europe only narrowly survived populism. One third of the French electorate did not vote in this second round and Le Pen obtained 34.1% of the votes, which is almost twice what her father got in 2002, leaving the new President elect with large domestic challenges.”