ABN AMRO: Outcome first round French presidential elections favourable for financial markets

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Emmanuel Macron and Marine Le Pen have won the first round of the French presidential elections on Sunday. Initial market indications are pointing at a modest recovery in the euro and a slightly higher opening of European equity markets at the opening of markets this morning.

Annemijn Fokkelman, ABN AMRO Private Banking’s Global Head of Equity Strategy, says the outcome is favourable for markets: “For financial markets, this round was already decisive and I expect markets to react relieved. Stock markets have been rising for several months, but were recently held back by geopolitical concerns, amongst which the elections in Europe, such as the French. The markets have some room to ease now, and to continue to pay attention to positive fundamentals.” For the next round, ABN AMRO’s base-case scenario is that Macron will be voted as the next French President. The outcome of the French parliamentary elections in June will be essential for Macron to gain parliamentary support for his programme.

What should investors do?

Following the initial results last night, ABN AMRO concluded that economic fundamentals worldwide are improving and expects the positive momentum to stay. The bank continues to favour stocks, as bonds remain unattractive. Advice is to have a large reserve of cash ready to be deployed as opportunities arise favour European equities over US equities. 

Fokkelman continued: “Compared to the US, the environment for European equities is rapidly improving: we see signs of rising European economic growth, much stronger upwards earnings revisions than in the US and increasingly attractive valuations. The elections in Europe continue to represent risks, but we see these risks abating”.

As for bonds, ABN AMRO suggests investors to reduce the portfolio duration. As such, strategy is to be positioned not only for higher global yields over the next 12 months, but also for the relief rally after the French elections that should push German Bund yields higher again.

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