Second key election constructive for sector …
Post the Dutch election, the 1st round of the French presidential elections yielded a result which we think is constructive for the European Financials sector.
… as the pro-EU candidate wins 1st round
Following the 1st round of voting, Mr. Macron, the pro-EU centrist candidate, won with 24% of the vote, followed by Marine Le Pen (22%). The runoff voting round takes place on 7th May. With polls indicating that Mr. Macron is likely to emerge as the winner, we believe the market will interpret the result as positive for Financials
overall, and banks in particular.
Banks: BNP, UCG, CABK, KBC key calls
We see the 1st round election outcome as beneficial for Eurozone banks overall, with the French, Italian and German banks likely to react most positively. Our positioning, which assumed a “benign” outcome, remains relevant and we recommend investing in BNP, UCG, CABK and KBC (all CL Buy). The attractiveness of these stocks rises with a normalizing political situation, in our view.
Insurance: Life insurers most geared
In an economically adverse scenario, non-life names would have benefited from their perceived ‘defensive’ qualities. As the market moves to price in lower political risks, we see life insurers as most exposed given their macro gearing, and therefore best placed to benefit from an economically positive outcome (e.g. Buy-rated PRU (on CL), STJ).
Diversified Financials: Volumes and asset price moves are key
Volatility is likely to boost trading volumes at Euronext (Buy) in any unexpected election outcome. An adverse election scenario is likely to boost appetite for non-EU assets, supporting Ashmore (Buy). Italian asset managers are likely to be strong in an unexpectedly positive outcome.
Real Estate: Prefer non-Eurozone in ‘adverse’
In an economically benign scenario, we see upside potential from Colonial (CL-Buy) and FDR, Icade and Gecina (Buy). In a more adverse election scenario, we would expect UK, Swiss and Nordic landlords to outperform and highlight Buy-rated Entra, Big Yellow, and Secure Income.