Roger S. from Chicago, IL asks: “There seems to be a lot of concern surrounding the upcoming French election for presidency. I have an international fund in my portfolio. Should I be cautious about the outcome of the election and potentially take action depending on who wins?”
Mitch’s Reply:
It’s good to see that you have an international component in your investment portfolio. Though international investing is not for everyone, for a long-term growth portfolio it usually has a place in adding to one’s overall diversification and potentially adding alpha over time. Sometimes foreign outperforms domestic U.S. equities, sometimes it’s the other way around. Having broad exposure can help you participate in the outperformance either way.
For you and other investors, however, I would recommend having one of our Zacks representatives analyze your foreign holdings to help you gauge your overall risk level and talk to you about where you have exposure. If you are over-allocated to European banks or Emerging Markets, for instance, your portfolio may need some adjusting. We can help you with that.
Your question is perhaps the most critical topic of the week, as French voters head to the polls on Sunday, May 7 to elect their next president. The choice is between far right National Front Candidate Marine Le Pen, who has been likened to Donald Trump, and centrist candidate Emmanuel Macron of the En Marche! Party (a party he founded).
First, a quick overview of each candidate. Marine Le Pen is a political veteran, whose policies stand firmly on nationalism and securing the borders of France. She has campaigned on a plan to remove France from the eurozone outright, or forcing the European Union to drop its open border and common currency provisions. She has seized on France’s 10% unemployment rate, shuttered factories, and waves of immigrants to embolden French voters around the need for isolationism and a focus on domestic policy versus globalism.
Macron is quite the opposite. He is a centrist candidate who supports the European Union and globalism, free trade, and (mostly) capitalist principles on business. He was, after all, a former investment banker. Macron is clearly the business and equity market choice to lead France, in my opinion, as his policies would maintain the status quo on the European Union which needs assurance and strength, not further dismantling. Though Marine Le Pen’s policies may sound bold and necessary to many in the electorate, they are not likely to advance France’s economic and security agenda. On the contrary, Le Pen’s insistence on leaving the European Union would likely lead to economic uncertainty and ultimately a messy breakup (with a recession likely, too).
Though it is difficult for many to see, the European Union, in my opinion, is not a failed experiment. Far from it. Opening borders to free trade and taking a global approach to business is the most optimal path forward for economic advancement and wealth creation, in my view. The government (both here and abroad) just needs to do a better job of transitioning workers into the new economy and ensuring the labor force can adapt to rapid changes. That means more training and temporary support systems for those displaced by economic advancement. It’s a tall order, but it’s not impossible.
As for the market impact and your international fund, again I would recommend having one of our Zacks representatives take a look at your portfolio to better understand what kind of exposure you have. Feel free to reach out to us at 312-265-9312. In my opinion, a victory for Marine Le Pen would be a slight negative in the short-term for European and perhaps global markets, but her election alone does not ensure any kind of chaos or fulfillment of her promises to leave Europe. That would require a referendum for French voters, the outcome of which is not ensured. My overarching belief, however, is that the worst-case scenario here is a Le Pen victory and a successful “Frexit” referendum to leave the European Union. If all of those cards fall into place, I think it could mean an end to the European Union experiment, which I would see as a sizable negative.
In the meantime, while we wait to see what outcome comes from the French election, it’s important to keep your eyes open to developing investment trends that could impact your portfolio. Download Zacks’ latest Stock Market Outlook for more insights. Simply click on the link below to download your copy today. It’s a quick read but contains a lot of predictions and information.
Disclosure