What follow-ups after the election of Emmanuel Macron?
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The French presidential election finally ended on Sunday, May 7 with a wider than expected victory of Emmanuel Macron, nevertheless with an abstention and blank vote rate high. After a campaign described as « hard » by many observers, marked by the elimination of the « traditional » parties and the rise of « dissenting » parties, Emmanuel Macron’s victory makes it possible to remove a major political uncertainty for the financial markets.
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It is true that there are still legislative elections, where « la République en marche » (« The Republic on the Move »), the new name of the party of Emmanuel Macron, aims at obtaining a presidential majority able to implement the program of the president-elect. Although historically the French have given a majority to the previous presidents, the polls are uncertain and the probability of a coalition government remains significant.
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But the political risk has still declined since the first round of the election, as evidenced by the CAC index up 7.4% between the two rounds of vote. If the stock market reaction of May 8 seems mixed, -0.9% for the CAC on the day, the reason is that the equity markets had already integrated the victory of Emmanuel Macron. On the bond market side, the reaction is also weak post-election, with the spread between the French OAT and the 10-year German Bund, which had surpassed 80 basis points in mid-April, had already fallen around 50bp after the 1st Turn before finishing at 42pb last Friday. It has since evolved into a tight fork of 41 to 43bp.
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By removing political risk in the short term (Italian elections are scheduled for spring 2018), markets will return to more economic fundamentals. The ECB’s attitude towards improving economic conditions and rising inflation will be key to determining the evolution of monetary policy, in particular the pace of deceleration of monetary easing and then the rise in interest rates directors. The next meeting at the beginning of June could provide new evidence now that the French political risk is mitigated. In the meantime, the re-rating of European equities is expected to continue, with an anticipated acceleration of capital flows attracted by more attractive valuations than in the United States, while the outlook for European companies’ earnings growth is improving.
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Our funds Trecento Santé and Trecento Robotique, invested 31% and 22% in Europe, will benefit from the appreciation of European stocks in the portfolio. This will add an additional catalyst for performance beyond the inherent growth factors of the healthcare sectors (demography, innovation, emerging markets) and robotics (factory 4.0, 3D printing, self-transport, medical robots, artificial intelligence) on the long term.
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The entire Trecento team remains at your disposal for more information.