French election looks set to lift European equities but Italy may bring new risks

European equities are expected to outperform in the long term if centrist candidate Emmanuel Macron wins the French presidency in the run off election on Sunday, said analysts.

“It is clearly a very market-friendly outcome,” said Martin Skanberg, fund manager for European equities at Schroder Investment Management, referring to the fact that Macron won the first round of the French elections.

Analysts at BNP Paribas hold similar views, expecting modest upside potential for European equity markets on relief over the election outcome. “[We are] likely to see VSTOXX volatility [the most watched European volatility index]decline sharply,” they said.

Structural issues with the so-called European project have weighed on international investor sentiment meaning there is ample room to see a rotation back into risk assets and global equities.

“If you look at the degree of underperformance in European equities versus the S&P 500 or the global index, then equities are believed to be in the very early stages of a turnaround,” said Skanberg.

The French CAC 40 Index increased 7.5 per cent in 2016 compared with 11.2 per cent for the major US S&P 500 index. Hong Kong stocks, however, just rose 3.6 per cent in the same period.