French election results very positive for European banks

Financial markets were relieved to see Emmanuel Macron make it to the second round of the French elections ahead of Marine Le Pen and it is now widely believed that he is the strong favourite to become the next president of France. The French stock market soared 4% on Monday after the election while the Eurozone banks index was up 7%, as French banks and Italian banks soared. A win for the pro-EU and pro-euro Macron removes uncertainty about political instability in the Eurozone and any risk that France may exit the euro, something that Marine Le Pen has committed to do if elected. And with European banking stocks very sensitive to any eurozone breakup scenarios, it is no surprise that Eurozone bank shares soared on the news. We are now more inclined to increase the fund’s investment allocation to a small number of high quality eurozone banks assuming Macron is elected, as we do not see any major political risk in the eurozone moving forward. In Germany, both front-runners for September’s election (Angela Merkel and Martin Schulz) have a strong pro-European agenda.