European Political Risks

Recent Dutch opinion polls suggest that Geert Wilder’s Party for Freedom may well win a majority of parliamentary seats in the Dutch General Election on 15th March but looks likely to struggle to form a coalition that would support holding a referendum on the Netherlands leaving the EU. The risk of a Nexit therefore looks reasonably low.

The big worry for most investors is the outcome of the French Presidential Elections. The candidates for the centre right, namely Francois Fillon and Emmanuel Macron look neck and neck in polls. Mr Fillon is under pressure to stand down over the payments to his wife. Both are vying to come second to National Front candidate Marine Le Pen who is out in front for the first round ballot. The polling for the second round head to head ballot predicts Le Pen losing to either Fillon or Macron as the anti-National Front vote moves against her.

The mainstream forecasts assume that either Fillon or Macron defeat Le Pen thus avoiding potential market instability. If Le pen does manage to defy the polls just a Vote Leave and Donald Trump did in the UK and US then the implications will be a massive increase in Government bond spreads and falls in European bond prices. Europe could fall into recession with deflationary pressures spreading elsewhere. Capital would leave the Eurozone and take flight to US$, ¥ and GB£. Already sentiment towards French stock is at a two year low and French bond spreads are at a 17 month high.

However, if polls and forecasts are correct then France and Europe could see a bounce in asset value.

---

Comments are closed.