The iShares MSCI France ETF (NYSEArca: EWQ), the largest France exchange traded fund trading in the U.S., is up 5.3% year-to-date. That performance can be seen as impressive when considering the controversy surrounding France’s upcoming national election – the first round of voting takes place on Sunday, April 23.
EWQ allocates over 37% of its combined weight to industrial and consumer discretionary stocks while financials and healthcare names combine for over a quarter of the ETF’s weight. Some market observers are concerned about far-right candidate Marine Le Pen, who has been openly critical of Islamic fundamentalism.
Markets likely want Le Pen to be defeated and that appears to be likely outcome in France, which could further support EWQ.
Earlier this year, BlackRock, the world’s largest asset manager, also sounded a bullish tone on Europe. Additionally, some data points suggest investors are looking to Europe for value opportunities as they now view U.S. equities as overvalued.
“We see European stocks as big beneficiaries of the broadening global reflationary environment and believe investors are too skeptical of the region’s prospects,” Richard Turnill, Global Chief Investment Strategist for BlackRock, said in a research note, pointing out that BlackRock upgraded its view on European equities.
However, investors recently pulled cash from EWQ, but French bonds have been steady performers.
“The bonds take on a “credit” expression at times unlike the the G3 (bunds, gilts, Tsys) which can counter equity flows and generally don’t embody credit or risk on correlations. Inverse correlations. So, the OAT [obligations assimilables du tresor i.e. longer-term bonds] market, equity expressions and French assets are taking on correlation expressions with risk assets based on perceptions of developments in political landscape in France and polling ahead of this weeks elections. Today is relief rally, suggesting a more stable anticipated outcome. Who knows what tomorrow brings,” according to a Brean Capital note posted by Cyrstal Kim of Barron’s.
France is the Eurozone’s second-largest economy behind Germany. Germany also holds elections later this year and Italy, the region’s third-largest economy, is expected to do the same.
The French election uses a two-round system, by which a candidate needs to secure over 50 per cent of the vote to win.
If a candidate does not manage to win an absolute a majority, the top two will go head-to-head in a second vote on Sunday May 7.
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