So, can we now discount the possibility of ‘Frexit’? Looking to June’s National Assembly elections, Rathbones asset allocation strategist Ed Smith remains cautious.
“Under Article 11 of the French constitution, any group of at least 20% of MPs, supported by at least 10% of the popular vote, can call a referendum,” he said.
“While we do not believe that euroscepticism in France is enough to win a Frexit referendum if this were to play out, the political noise would continue.
“Of course, the political noise in the wider region will continue regardless thanks to the Italian and German elections due later in the year, which could cause uncertainty.”
With this in mind, Rathbones is underweight Europe with no expectations of a substantial relief rally in its assets.
“We believe that momentum will be arrested – albeit not reversed – as inflation rises and wage inflation struggles,” Smith explained.
“When we adjust accordingly for structural differences and sectoral composition, European equity valuations are expensive, and not that much less expensive than the US.
“In our view, UK and Asian equities look more attractive than European equities on valuation grounds.”
From an equity fund manager’s point of view, Ian Ormiston, who runs Old Mutual Global Investor’s Europe (Ex UK) Smaller Companies fund, said he is likely to take some profits on French holdings following a recent bout of market strength.
“As always, we seek to invest in companies where as much of the investment case as possible lies in the hands of the company management, whether it be through a growth agenda, acquisitions or cost-cutting,” he said.
“Macroeconomics is never our main reason for investing in a company so while we welcome any improvement in growth potential in France, we do not expect it to be a stand-out contributor to returns in 2017.”
