Commenting on the French presidential election first round result, John Wyn-Evans, Head of Investment Strategy at Investec Wealth & Investment, said: “The news today that the independent Emmanuel Macron and the far right Marine Le Pen have prevailed at the polls, setting up a final head-to-head in 2 weeks’ time, is seen as positive. Given the circumstances, this was the market’s preferred outcome, and the expectation now is that M Macron will prevail in the second round. His policies cleverly appeal to both sides of the political spectrum, and they are succinctly described by the Financial Times as a “business-friendly agenda coupled with Nordic-style welfarism”, encompassing, for example, labour market deregulation, lower corporation tax, and no social security contributions for those on the minimum wage. He is also a strong supporter of the European Union, although a full exposition of his EU policies might have to wait until we know who wins the German election later this year. We acknowledge that M Macron’s En Marche! Party is unlikely to attain a parliamentary majority in June’s legislative elections, but believe that a centrist, market-friendly coalition can be formed.

“The immediate result is a 3%-plus mark-up for equities in Europe this morning, with French banks leading the charge, up around 7%. There are also some big moves in the sovereign bond market, with a strong bid for French bonds and for those of the riskier peripheral countries while safe havens sell off. There has been a 16 basis point reduction in the spread between the French and German 10-year bonds. The euro is around 1% percent higher against the US dollar, although was as much as 2% higher in overnight trading.

“In anticipation of this outcome, we increased our Overweight position in European equities at our last Asset Allocation Committee meeting. We had said for a while that Europe looked attractive as an investment destination, but had been holding back from further investment owing to political concerns. Europe has the potential for further recovery that has already taken place in, for example, the US and the UK. Policy mistakes were made (not least by the European Central Bank when it raised interest rates in 2011), and the recapitalisation of the banking sector was slow to happen (but at least faster than in Japan after its own problems in the 1990s). The global economy is in its first concerted upswing since 2010/11, with all key economic areas participating to some degree. Economic data in Europe continues to have positive momentum. This continues to be backed by loose monetary policy and less stringent fiscal policy, and we don’t believe that stimulus will be withdrawn prematurely, mainly because the consequences of deflation are a lot worse than those of inflation in the current environment. Europe’s stock market is calculated to be one of the most operationally geared into continued recovery and (on the long view) has a lot of catching up to do.”