“The Netherlands holds elections next week, soon to be followed by France, and later Germany and Italy. We are most focused on the outcomes in France and Italy, where populist parties could potentially gain power. Government yields there are up sharply, with spreads at some of the widest levels since the eurozone sovereign debt crisis,” said BlackRock in a note out Tuesday.
The iShares MSCI France ETF (NYSEArca: EWQ), the largest France ETF trading in the U.S., has seen modest inflows to start the year ahead of what could potentially be a controversial election in the Eurozone’s second-largest economy.
“Markets view France’s presidential vote as the next potential electoral shock. Populist candidate Marine Le Pen, who has flagged a referendum on EU membership and reintroducing the franc, appears poised to make it to the final round of the two-round voting system,” said BlackRock. “Yet if she does, polls suggest she will likely lose, with a polling gap far wider than that seen ahead of the Brexit and U.S. election surprises. Even if Le Pen were to win, we believe she would have a hard time securing a majority in parliament, lowering the near-term risk of a eurozone breakup.”
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