French elections promise a chaotic two months for investors as money tracks politics

 
Jasper Jolly
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Emmanuel Macron Visits Berlin
Investors have seemingly pinned their hopes on Emmanuel Macron (Source: Getty)

Fears of French electoral chaos have continued to drive sentiment in Europe in the past week, with volatile movements as investors follow the twists and turns of a tumultuous campaign.


Redemptions from French equity funds reached their highest point since before Donald Trump was elected as US President in November during the week to 22 February, according to data company EPFR Global.

Investors fled after polls showed independent centrist Emmanuel Macron losing ground from the far-right National Front candidate, Marine Le Pen. Macron was seen to have damaged his campaign with criticisms of the French treatment of its former colony Algeria.

Read more: Scandal-hit Francois Fillon could gift Marine Le Pen the French presidency

However, French bond yields fell to their lowest point for a month at the end of the week, after Macron’s standing improved. The latest in a series of daily polls by OpinionWay puts Macron’s vote share at 23 per cent in the first round of voting, approaching that of Le Pen at 26 per cent.


Macron may have benefited from a decline in the polls from left-winger Benoit Hamon, as well as the endorsement of Francois Bayrou in return for a law tightening corruption.

The benchmark yield on French government debt fell to lows of 0.917 per cent on Friday with lenders feeling more reassured, while the spread between the yields on 10-year bonds issued by Germany and France narrowed after reaching a trough earlier this week.

Read more: Macron's presidential bid wins a big endorsement, and the markets like it

With the first round of the election due on 23 April investors are braced for two months of volatility as sentiment tracks the electoral campaign.

A Le Pen victory threatens to send markets reeling. Le Pen has threatened to hold a referendum on leaving the euro if elected, a move that could put the continued existence of the European Union in doubt.

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