French stocks experienced a mixed trading session Monday as investors assessed the implications of an unexpected left-wing victory in Sunday's second round of legislative elections.
At 8:30 a.m. ET, the CAC 40 index, which tracks the forty largest companies in France by market capitalization, was trading near flat, erasing earlier gains. Despite the index’s stability, the French luxury sector took a hit.
Three of the sector’s largest companies each traded in negative territory as market sentiment weakened over concerns of increased wealth taxation following the left’s win.
- Hermes International SA HESAF down 0.7%
- LVMH – Moët Hennessy Louis Vuitton LVMUY down 1.6%
- Kering SA PPRUY down 2%
What Happened: The left-wing New Popular Front coalition (NPF)—comprising the far-left France Unbowed, the Socialists, and the Greens—secured the most seats, with 188. This outcome defied expectations, given that President Emmanuel Macron‘s centrist group, Ensemble, won 161 seats, and the National Rally (RN) claimed third place with 142 seats.
In an effort to avoid three-way run-offs, centrist and leftist parties had earlier agreed to withdraw 221 candidates after the RN emerged as the leading party in the first round. This strategic move included 83 candidates from Macron's camp and 132 from the NPF.
While the risk of a far-right government has been averted, the left-wing's relative majority introduces new uncertainties. With no political group holding an absolute majority, a political gridlock looms.
The left, having gained most seats, might be called upon to form a new minority government, likely seeking alliances with centrist and other political forces.
However, in response to the election results, President Macron rejected Prime Minister Gabriel Attal's resignation, asking him to stay in office temporarily to ensure the country’s stability.
Why It Matters: Jean-Luc Mélenchon, the leader of the left-wing faction, is a controversial figure known for his anti-euro and anti-NATO stance. Admiring former Venezuelan leader Hugo Chavez and Cuba's Fidel Castro, Mélenchon is an advocate for wealth redistribution—an ideology that makes Wall Street uneasy.
The NPF aims for a radical shift from Macron’s neoliberal policies, focusing on enhancing the welfare state and redistributing economic resources to the working and middle classes. Their key proposals include raising the minimum wage to 1,600 euros per month, abolishing Macron’s retirement age increase, reintroducing a wealth tax on large fortunes, imposing fiscal measures to tax the super-profits of large companies, and halting the shipment of French arms to Ukraine.
These economic measures could substantially increase the burden on French spending, adding further strain to an already troubled government budget. Last year, Paris ran a budget deficit of 5.5% and once again saw its debt-to-GDP ratio exceed 110%.
The European Union has placed France, along with other highly indebted nations, under an excessive deficit procedure. This requires active dialogue with the government to find solutions for alleviating the stress on public finances.
Expert Ideas: Maurits Pot, CEO of Tema ETFs, shared his insights with Benzinga:
"Short-term interest in listed French luxury companies could be more subdued as markets digest whether the prime targets of a left government become French luxury tycoons."
He further noted, "We are less concerned about actual luxury demand since, for most French luxury companies, France represents a fraction of overall sales. We hold French equities in our Luxury fund – TEMA Luxury ETF LUX – including major groups like LVMH and Remy. While a left government might pose challenges for billionaire owners, shareholder affairs rarely impact the companies they own,” he stated.
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