French election result means sighs of relief from Asian investors and policy-makers alike
Macron’s victory ‘is a known outcome that allows business as usual, and prevents negative political cross currents’ says one leading analyst
France’s new pro-business-growth president is being seen as positive news for the Chinese currency, its manufacturers and exporters, according to analysts.
The result will also likely benefit the euro and European stock markets, as the new president supports France staying in the European Union, while also wanting to see business growth — opposite views to his beaten opponent.
Emmanuel Macron won France’s presidential election on Sunday with a wide margin after gaining roughly 65 per cent of the vote, easily beating off far-right rival Marine Le Pen.
Brett McGonegal, chief executive of Capital Link International, said the most important first consequence of the Macron’s victory “is a known outcome that allows business as usual, and prevents negative political cross currents”.
“The stability of the EU is most important as a Le Pen victory would have sent shock waves through the area and the world. Macron’s victory cements the near-term stability of the EU thus helping to keep the euro at current levels and leave global foreign currency markets at ease,” he said.
While McGonegal said it is still far from sure that Macron’s new policies can boost the flagging French economy, he believes the 39-year old new president should make an early visit to China a priority.
“One thing is for sure, if Macron wants to jump-start growth and increase French business prospects, he should get to Beijing as soon as possible and forge some joint business and trade initiatives,” McGonegal said.
If the French economy improves, however, he believes the steady flow of French workers flooding Hong Kong in recent years will slow as development picks up pace at home.
Over the past decade, the number of French in Hong Kong has doubled to 20,000, making it the largest French expat community in Asia.
“The socialist system is broken and a new balance will be reached that should result in a stronger French economy and more emphasis on domestic growth thus quelling the overseas bleed,” he said.
Keith Pogson, a senior partner at accounting firm EY, also believes the youthful-looking new president will be looking to develop closer economic tie with China.
“China has some euro-denominated assets so to the extent that the Eurozone stays together, that is a plus for China and hence the renminbi,” Pogson said.
Macron’s policy to support global trade is certainly seen as a plus for Chinese exporters to Europe, Pogson said, especially those distributing manufactured products.
Raymond Yeung, chief economist for greater China at ANZ, said Europe is China’s largest export market, representing a fifth of its total.
“A stabilised Europe should help maintain China’s trade recovery and hence Hong Kong’s re-export activities,” Yeung said.
Besides exporters and manufacturers, the French election result is also seen to be factor supporting the euro’s rising against the US dollar, and hence support for the yuan near term.
“In principle, the election result should help extend the recent dollar weakness and favour the yuan. However, recent concern on credit tightening will continue to weigh on the Chinese currency. We still expect it to trade against the US dollar at 7.10 yuan by the end of 2017,” Yeung said.
The yuan fell 7 per cent against the US dollar last year and is now trading at around 6.90 yuan per US dollar.
Stephen Innes, senior trader at Oanda, however, believes the yuan could be weakened shorter term due to the most recent domestic economic data, but would not be affected much by the French election result.
“The RMB is weaker due to the poorer-than-expected PMI service and manufacturing data,” Innes said.
He said France’s policies are still met with a lot of uncertainty in some markets, but believes the result would lead to capital inflow to Europe and that would benefit undervalued banking stocks.
Mark Konyn, group chief investment officer at insurer AIA Group, also believes in a positive market outlook, although he agrees uncertainties could lie ahead, given the legislative elections are still due in France next month.
“Generally Macron’s election removes one of the critical uncertainties facing markets coming into 2017. This should allow European equities to continue their progress given their significant valuation discount to other global markets, including the US, and should be credit positive for France,” Konyn said.
John Woods, chief investment officer for Asia Pacific at Credit Suisse, said given the region’s largest trading partner is the EU, of course the election result is important.
“Economic ties with Europe directly influence the region’s growth potential, the ability of local corporates to access bank credit and, and the performance of Asia’s currency, equity and bond markets,” Wood said.
“Therefore it is no surprise that the receding political risk post the French elections will bring a sigh of relief for Asia’s investors and policy-makers alike.”