Amundi Investment Talks - Macron’s re-election is positive for French Assets Dienstag, 26. April 2022 - 10:00

Dear Sir or Madam,

Please find below statements of Vincent Mortier, CIO at Amundi, on the consequences of Emmanuel Macron's re-election for the French stock market:

§  Emmanuel Macron won French presidential elections: In Sunday's second-round runoff, Macron defeated far-right National Front leader Marine Le Pen by 58.5% to 41.5%, confirming his leader in the most recent polls. However, the outcome in the second round was much narrower than in 2017 and the abstention rate was put at 28%, the highest in 50 years.

§  Investment implications: Although Macron's win had been somewhat anticipated by the markets, the election outcome has removed a key risk. The re-election is positive for the EURUSD exchange rate, as well as for French equities, which offer a compelling valuation on relative value.

What are the opportunities and risks of investing in French equities?

French equities (CAC 40) are more cyclical than other European markets, such as Switzerland (SMI) or the UK (FTSE 100). Opportunities relate to valuation and the heavier representation of companies with strong pricing power, such as the luxury sector. The risks relate to the economic slowdown, whether regarding the energy crisis or monetary tightening. We also see upside risks, as France is one of the few European countries that instituted reforms over the past four years. Secondly, the CAC 40 index is well balanced in terms of weights between banks, cyclicals and services. Only around 15% of the activity of CAC 40 companies occurs in France. Furthermore, there has been a decent flow of lending data and a definite improvement in services. There is room for sentiment to improve given the discrepancy between consumer expectations and economic strength. France does not have the huge income gap seen among other economies and it has a much better energy mix than its European peers such as Germany and Italy.

How could the election of Macron impact the French stock market?

The re-election of Emmanuel Macron will mean the status quo will remain, removing a tail risk, even though there is a sense of division in the country that may hinder the reform agenda, along with growing fears on the level of the French debt, which will limit the capacity to act.

French large-cap stocks have outperformed the rest of Europe in the five years of Macron's first presidency and could thus regain some of their losses after the re-election. However, global drivers are likely to prevail over domestic ones – in particular, exposure to China and to the Russia-Ukraine war. The more domestic-oriented small caps could benefit from hope of further structural reforms and higher investment which would boost competitiveness. Macron's second term should be positive for the relative performance of French equities and the EUR/USD. Investors could play the French cycle through financials, infrastructure and industrial sectors.

What can French equities bring to a global equity portfolio, with a particular focus on ESG?

France's CAC 40 emissions data are dominated by fossil fuels, manufacturing and material production. The 2021 index temperature scores show that France was aligned with a 2.7°C temperature increase, a better result than Canada (+3.1°C), the UK (+3.1°C), Japan, as well as the United States (+3.0°C). France is on par with Italy while Germany is doing marginally better (+2.2°C). The French index shows the lowest rate of companies without climate targets, a good start for companies to outperform in this regard. Aside from this general remark, French equities offer undisputed exposure to the energy transition, with a rich panel of companies positively active in the construction sector, including building and electric material producers. Despite some negatives, the luxury sector generally performs better in ESG rankings than mainstream retail companies. The French index also offers a fair exposure to hydrogen mobility. Combining enhanced transparency and lower carbon emissions, French companies are well perceived by the traditional ESG rating agencies used by many investors. French companies enjoy enhanced transparency, as since Grenelle II (2010)[1], French ESG disclosure obligations have been more stringent than those of other EU member states. For instance, French companies are required to have their non-financial reporting audited by a third party, which is not the case currently at the EU level under the Non-Financial Reporting Directive (NFRD). Consequently, French companies are usually more transparent than their EU counterparts. This is valued by traditional ESG rating agencies, as their methodologies have significant 'transparency bias'. With regard to reducing carbon emissions, due to the role of nuclear energy in the French energy mix, French companies with a significant share of their operations in France – and more broadly French companies overall – have lower Scope 2 emissions than their German counterparts, for instance, which rely on coal and natural gas as sources of electricity generation. Considering the weight of climate- and energy-related metrics in the methodologies of traditional ESG rating agencies, French companies are likely to be attractive from an ESG perspective.

***

Please find attached the full report and a photo of Vincent Mortier, CIO at Amundi. For further information or interview inquiries, please contact me on +49 172 350 1101.

Kind regards,

Anette Walker