In the wake of the election of Emmanuel Macron over Marine Le Pen as France’s new President, numerous media outlets have applauded his victory as a solid rejection of opponents of the EU. The question is, what might Macron’s election mean for markets and even your portfolio?
First things first: Victory for Macron means France is staying in the EU for the foreseeable future, thereby avoiding a “Frexit.” That kind of stability is important not only for France but for the future of the EU itself.
Plus, since we are all global investors to some degree, there’s reason for many of us to feel optimistic too. A revitalized France is likely to forge a strong partnership with Germany that will be fundamental to the EU’s longevity.
In addition, Macron has called for an end to the practice of moving jobs between EU member nations in the name of cheap labor. If he ultimately succeeds, the potential is that such member nations would be more firmly integrated within the EU. Let’s face it – one more initiative to decrease the chances of the EU disintegrating certainly doesn’t hurt in the eyes of global investing.
A Pro-Business Agenda That Bodes Well
While French unemployment has been close to 10%, Macron favors deregulation of certain industries and lower tax rates for corporations. Simply put, it’s not easy to hire people in France these days and, with outrageous payouts that must be made to severed employees, it’s not terribly easy to fire them either.
However, with a deregulated labor industry and lower tax rates that could encourage business growth, France may very well be able to move those unemployment numbers in a far more positive direction. We see a much greater chance of a stimulated French economy through these methods than the “experiments” of negative interest rates and other spending initiatives that just weren’t sustainable.
Furthermore, speaking of labor, we’re encouraged by the productivity of the French people, who continue to show that a 35-hour workweek is not limiting their economic output whatsoever. Other nations in the Eurozone may have lower unemployment rates, but France is literally producing more with less.
So – What Does Macron’s Election In France Really Mean For You?
If you’ve been skittish about investing in European stocks due to the uncertainty of the EU, the election results should provide a bit more comfort in terms of stability, at least for now.
That’s not all – in spite of the press that paints such a fragile picture of the region, did you know that the Eurozone has actually performed slightly better than the U.S. economy over the last few years? That’s right. The MSCI EAFE index (which covers markets outside the U.S. and Canada) has outpaced the S&P 500 in the early going this year and it may see even bigger returns over the next several years.
Combine this fact with the aforementioned corporate tax cuts and regulatory reform on the table and suddenly, the future of equity investing in Europe looks much brighter than it’s often portrayed.
By the way, do these economic plans from Macron sound familiar? They should. Deregulation. Spending cuts. Corporate tax cuts. It’s very similar to the agenda we hear from The White House. Put aside the politics if you can for a moment and let’s focus on the policies. There is past evidence that a combination of deregulation and tax cuts, when implemented on a broad scale from the U.S. to Europe, results in a stronger global economy. If history repeats itself, look for those investors who don’t shy from European stocks to potentially reap the rewards.
Look, we’re going to continue to hear talk of nations that might exit the EU and how it might crumble but nations such as Germany and France have proven to be resilient on many levels. The EU will need that kind of leadership and stability to steer it through the next challenge (Hint: Don’t be surprised if you hear the term “Italexit” again soon), but we’re confident that it can be kept together despite this chatter.
So should you expose your portfolio to European stocks? It’s time you received some insight on global investing that sets the record straight – the kind you can’t get from the news media that only speculates and focuses on the present.
Instead, talk to us at Fiduciary Financial Partners. We keep a watchful eye on events like these for the purpose of putting them in the context of your goals both today and much farther down the road. That’s what comes from having a trusted advisor who puts your interests first. Make sense of it all by contacting us at 630.780.1534 and feel better about your investment strategy.
John Eberle, CFA® is a Financial Advisor & Chief Investment Officer at Fiduciary Financial Partners. For nearly 20 years in the investment management industry, John has helped high net worth individuals plan a future that they and their families can embrace with confidence.
Fiduciary Financial Partners, LLC is a Registered Investment Adviser. This blog is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Fiduciary Financial Partners, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Fiduciary Financial Partners, LLC unless a client service agreement is in place.