Markets reacted positively to news centre-left candidate Emmanuel Macron won 23.8% of votes in the first round, with the Euro Stoxx 50 index rising 3% and French equities up 5% this morning.
Macron is widely expected to defeat Front National leader Marine Le Pen, who stood on an anti-EU and anti-immigration platform, at the second round of voting on May.
Financials such as Barclays, Standard Chartered and Old Mutual saw their share prices rise on the back of the first-round result, while the Euro Stoxx Banks Index rose 6.1% in one of the most successful days for banks in the last 12 months.
However, while investors welcomed the calming news of Macron’s early victory, asset allocators warned the result did not signal the end of volatility in France and Europe.
Morgane Delledonne, fixed income strategist at ETF Securities, raised concerns Macron could struggle to gain Parliamentary support for his young En Marche! party, which he established just 18 months ago.
“It is still unclear how Macron will win a clear political majority without joining forces with both the Socialist and Republicans groups,” Delledonne said.
“The uncertainty around the ability of Macron to gain a majority of seats in the Parliament to pass on his reforms will likely continue to weigh on the French-German government bond spreads in the next six weeks. We believe in a gradual tightening of the spreads in the weeks to come.”
Volatility looks set to remain a feature of European investing this year, State Street Global Advisers’ head of EMEA, Bill Street, said.
He was confident Le Pen would be defeated in May and that equities would continue to rally.
However, he added: “There could be more surprises to come in an event-packed European calendar however – UK elections, Greek debt talks, German elections, and the possibility of Italian elections in the not-so-distant future are enough to keep markets busy.
“Downside protection strategies are crucial given that the environment is likely to remain volatile.”
