Investors Relieved By French Election As Round 2 Looms.
“Our economists see a Macron win as most likely and importantly they also see little change to the economic outlook in that scenario”
French auto stocks Renault and Peugeot both zoomed ahead after opinion polls indicated a candidate favourable to industry, the centrist candidate Emmanuel Macron, would win the crucial second round on May 7.
The first round of the French presidential election was won by Macron with 23.9% of the vote. In second place was Front National candidate Marine Le Pen with 21.7%. Because none of the 11 candidates won more than 50%, a second round of voting is required and the top two go forward.
Renault, owned 20% by the French state, added nearly while Peugeot rocketed ahead by 7%. France owns 14% of Peugeot, which is in the process of buying Opel-Vauxhall from General Motors.
Macron’s election campaign calls among other things for more integration with the European Union (E.U.), lower corporate taxes to 25% from 33.3%, establishing a €50 billion government investment plan, 120,000 government job cuts, and some leeway with the current mandatory 35-hour working week.
Le Pen wants a referendum on France’s E.U. membership – Frexit – and for individuals to leave the Euro single currency. Le Pen also wants to maintain the 35-hour week, reduce taxes on the lower paid but higher tax on the better off, increase regulation, erect barriers to globalisation, lower the retirement age to 60, and tax the employment of foreign workers.
Initial opinion polls pointed to a landslide win for Macron in the 2nd round with a 60 to 65% share of the vote to Le Pen’s 35 to 40%.
“A Macron vs Le Pen showdown was as expected. We would expect French auto names to enjoy a relief rally given the scenario of a Le Pen vs Melenchon in the second round has been avoided,” said Citi Research analyst Michael Tyndall.
Melenchon was a left-wing candidate who also wanted to leave the E.U. He scored 19.5%, the same as conservative candidate Francois Fillon.
Macron win likely
“Our economists see a Macron win as most likely and importantly they also see little change to the economic outlook in that scenario. Unemployment and household confidence are the key drivers of French auto sales so to our minds a Macron win should have little influence over our 3.5% growth forecast for French auto sales in 2017,” Tyndall said.
Tyndall said there was an added complexity with the government relationship with Renault, because of an apparent difference of opinion between Macron and CEO Carlos Ghosn, who is also leader of Nissan.
Renault owns 44% of Nissan, which controls 15% of Renault. Ghosn has said the further integration of the Renault-Nissan alliance won’t happened while the government retains its stake, and Macron has indicated he wouldn’t be a seller.
Investment research Evercore ISI believes Macron might want to sell part of the Renault stake as part of his plan to promote industrial and research with funds from selling some government industrial stakes.
“While Le Pen has made no explicit comment on the government holdings of French autos, she has made clear her intention to implement Trump-like repatriation of French motor manufacturing, which, given the companies’ European manufacturing footprint, is a headline negative,” Evercore ISI analyst Arndt Ellinghorst said.
Citi’s Tyndall says a Macron win isn’t likely to rock the economic boat.
“If a Macron win is likely to maintain broadly the status quo in terms of economic outlook then the risks to French auto sales seem limited,” he said.