Following the sudden resignation of Prime Minister Sebastian LeCorgne, political unrest has been burned into the French investment environment, which could lead investors to shun domestic-centric companies. Lecorne, who had been prime minister for just 27 days, resigned on Monday, just hours after establishing a new administration after widespread criticism of the formation of ministers. The tight financial situation in France has been a prominent challenge for investors looking for trading opportunities in the European stock market. “The thing I probably want to avoid is within France,” said Nick Willensek, a macro trategist at Wellington Management. “They have a huge budget deficit and will ultimately force them to take more drastic steps to curb this budget deficit,” Willensek said, pointing out that far-left and far-right populists now account for more than 50% of the French parliament, saying that measures to combat the budget deficit will likely be centered on tax increases rather than welfare cuts, and will focus primarily on businesses rather than consumers. That would hit French banks, infrastructure companies and telecommunications companies the hardest, Willensek told reporters at a Wellington event in London on Monday. “Therefore, in my view that we are positive within Europe, I think there are much more attractive opportunities outside of France than within France,” Willenzeck said. Twice and turns Kevin Tosette, a member of the Calminyak investment committee, said the ongoing turmoil is likely to further accelerate Europe’s asynchronous growth environment. “While France is being dragged down by political instability, Germany is being supported by stimulus and Southern Europe is being supported by EU funds,” Tosette said. France’s CAC40 index rose slightly on Tuesday morning, rebounding from the previous day, with the yield on 10-year French bonds rising 0.013 points to 3.5821%. As of 10:30am London on Tuesday (5:30am Eastern time), French banks were in the negative zone, with BNP Paribas falling 0.9%, Societe General falling 1%, and Credit Agricole falling 0.6%. Telecommunications giant Orange traded 0.2% down. Mabruk Stuan, head of global market strategy at Natixis Investment Management, said instability has now become a part of the landscape. “This is how France became unruly governed, just like Italy a few years ago when a change of government became a norm,” Chetuan said. But the country is currently eschewing a singular predicament, Chetuan said, as presidential elections are not scheduled until at least 2027. “Investors passively observe the twists and turns of French politics and try to distinguish between noise and signals,” Shetouan said. He added: “Investors and markets alike are barely surprised by the political impasse and will likely accept that the situation will remain frozen until the next presidential election.” “In other words, there’s no reason to panic anymore because there’s a sense of déjà vu.” “It’s not a good sign.” On Monday night, French President Emmanuel Macron gave Recorgne 48 hours to break the political deadlock with opposing parties, and could then be forced to be the fourth prime minister since parliament was dissolved last June. Looking ahead, Chetuan said further dissolution is a “dangerous path” that will increase uncertainty for investors and detrimentalize an already vulnerable economy. “Unless future candidates make French voters realize the importance of the fiscal deficit issue and the French parliament does not reach some agreement, the fiscal deficit should remain between 5.5% or 6%. It is not a good for the spread of French OAT and German federal bonds,” Tose added.
