France, the Eurozone’s second-largest economy behind Germany, is a key component in diversified Europe ETFs. In dedicated Eurozone ETFs, France is usually the largest or second-largest country allocation. In diversified Europe ETFs that hold stocks from nations outside the Eurozone, France is usually among the three or four largest country allocations. That means the outcome of the France election in May is crucial to the fortunes of not just EWQ, but EZU and related ETFs as well.
In other words, political risks loom for French stocks, and that could hamper Germany and Italy, which are also slated to hold elections later this year.
“Both Macron and Le Pen are not part of the mainstream parties that have dominated French politics in the Fifth Republic for nearly 60 years. If Macron becomes France’s next president, he may struggle to implement his agenda without a stable parliamentary majority. We expect Italy to be the next focus of European political risk,” said BlackRock.
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