Clement Inbona

After the rain comes the sunshine?

More than half the world’s population will be called to the polls in 2024. Initial election results have often provoked panic on stock markets. Storms in a teacup?

By deciding to dissolve the French National Assembly before all votes in the European elections had even been counted, President Emmanuel Macron plunged France into political uncertainty. The reaction of financial markets was immediate, with the Paris stock market tumbling against its European counterparts and US markets. The French borrowing rate also rose against the German benchmark rate. Can this be seen as a structural no-confidence or a short-term jolt?

If we look at recent elections across the world, the answer appears to lie in the second option. At the start of June, the landslide victory in Mexico of Claudia Sheinbaum – who ran a campaign under the slogan “For the good of all, the poor first” – was punished as soon as markets reopened. The Mexican peso fell 4% versus the US dollar and equities 6%, before a speech intended to calm financial markets on the day after the election dampened this trend to some extent. The class struggle is trying to accommodate Mexican asset classes.

Nor did the re-election of Narendra Modi in India on 4 June this year, by a lower margin than expected, reassure investors, who voted against Indian equities on the day after the polls, pushing the Indian flagship index, the Nifty 50, down by close to 6%. Once again, this mistrust faded quickly, wiping out this bearish trend completely.

In France, we will have to wait for 7 July to know the outcome of the election. But markets have already started to reduce the country’s risk premium. Evidence of this can be seen in the French public debt issuance of 20 June, when subscription and coupon levels were reassuring. The Paris stock market has also begun to make up some of the losses chalked up a week after the dissolution of the National Assembly. After a quick analysis of the economic programmes of the various political groupings and tried to predict the outcome of the elections, the horizon is now looking gradually less gloomy to investors, albeit still uncertain. Little by little, the most expensive measures are disappearing from political manifestos, a trend which could continue further once in power. The aim of political programmes is to seduce electors, whilst exercising power may require a degree of realism and rigour in order to stay in place. It’s also worth noting that France is protected by the umbrella of the euro with a toolkit for the common currency that has been reinforced by the European Central to help contain the risk of widening sovereign debt spreads among members.

Financial markets do not seem to be entirely fooled by the saying attributed to many French politicians, that promises are only binding on those who believe them. Of course there is real political uncertainty in France but, as elsewhere, it may disappear automatically on the back of a swift outcome on 8 July.


Final version of 21 June 2024, Clément Inbona, Fund Manager, LFDE
The opinions cited are those of the fund manager. LFDE shall not be held liable for these opinions.