The upcoming parliamentary elections in France, announced by President Emmanuel Macron, have caused significant concern among investors. While the decision to accelerate the elections has impacted both the stock and bond markets, it is not just the timing that is causing worry. Investors are concerned about the potential outcomes of the elections, which could lead to a deterioration in France’s creditworthiness and financial stability.
The leading French stock index, the CAC 40, has experienced a decline this year, lagging behind other European indices. This trend is likely to continue as investors remain uncertain about which party will win and what policies they may bring. The possibility of a renewed euro crisis following the elections is considered unlikely but there are concerns about political instability and fiscal indiscipline that may come into play.
Economists believe that an escalation of the debt crisis similar to that of 2010 is improbable but a gradual deterioration in France’s creditworthiness is a real concern. While some see opportunities in certain French companies operating internationally and not facing financing problems, industries such as utilities, telecoms, and banking have taken a hit following the announcement of the elections.
While some believe that expectations may be altering too drastically, caution remains high among investors citing high risks and limited chances of substantial fiscal consolidation regardless of the election outcome. As such, it seems that while Macron’s decision to hold early elections was aimed at bringing stability to France’s political landscape; it has instead brought uncertainty and concern amongst investors.
