Stocktake: Risk of Le Pen victory spooks the markets

Investors are fearful but the most likely outcome remains another win for Macron

The prospect of far-right leader Marine Le Pen winning France's presidential run-off election on April 24th caused investors to get jittery last week.

French stocks underperformed their European counterparts following a poll suggesting the race has tightened, with incumbent president Emmanuel Macron’s lead over Le Pen within the margin of error. French bank stocks were hardest hit, while the spread between the yield of 10-year French and German government bonds hit levels unseen since April 2020’s Covid-related volatility.

Until recently, a Macron re-election looked a done deal, but last week's polls brought back memories of the 2017 election, when markets fretted that French voters might elect a far-right politician committed to taking France out of the European Union.

Le Pen has since backtracked on the idea of Frexit and leaving the euro, but investors remain wary about an economic populist who champions protectionist and anti-immigration policies.

That said, a Len Pen victory remains unlikely. "Don't panique!" said analysts at Allianz last week, stressing its base case scenario is another Macron victory.

The odds of Le Pen winning are about 4/1, according to bookmakers, so victory is unlikely – but not impossible.

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