French elections - vive la investment company

With a record-breaking turnout for the first round of the French elections and the second round coming up this Sunday, on the 6th May, the Association of Investment Companies (AIC) has collated the views of a number of investment company fund managers with a European focus for their views on the election.

Nicolas Sarkozy versus Segolene Royal

Roger Guy, Manager, Gartmore European Investment Trust said: ‘‘In the short term, we would prefer a victory for Nicolas Sarkozy of the governing Union for a Popular Movement. His campaign on key, market friendly issues such as taxation, employment and energy distinguish him from Socialist contender Segolene Royal. In the medium term however, we remain wary of Sarkozy whose strategy is in our opinion, risky. Should Royal succeed, we would not expect any radical changes. In fact we expect the status quo to prevail.

‘‘The days surrounding the election may lead to a reaction from the markets - a movement up or down, however, we expect this to revert back to pre-election conditions shortly afterwards.’’

Frank Rushbrook, Deputy Manager, European Assets Trust NV said: ‘‘Neither of the parties which the two presidential candidates represent has a manifesto that is completely conducive for business nor for that matter the French economy. Both candidates have proposed a number of measures that will inevitably lead to an increase in public spending, which may call into doubt one of the few positives of the French economy, its narrowing budget deficit.

"Nor has either candidate questioned the usefulness of the 35 hour working week which has played a significant role in weakening France’s competitiveness on the global stage. Ms Royal’s insistence that the 35 hour week should extend to small to medium sized enterprises is particularly disturbing as is her policy to re-nationalise the country’s industries. Mr Sarkozy may not be ideal but with a bent to the right he is a better choice for markets. Whoever emerges victorious from the presidential elections will have to work with a government comprising of the traditional political parties.

"France can only look on with growing envy at its neighbours Germany and the rest of Europe, a Europe it helped create, as they grow in confidence and power.’’

Outlook for France

Stephen Macklow Smith, co-manager of JPMorgan European Investment Trust thinks the investment outlook for France depends on who wins the election: "If Sarkozy wins and rolls back the 35-hour week, that should help French productivity and that in turn will help company margins. Assuming Segolene wins and tries to implement her whole programme, she may eventually be forced into a change of heart similar to that experienced by Francois Mitterand in the early 1980s.

"Internal trade in the Eurozone's free market is a key driver of sales growth. Since the launch of the Euro all European governments have realised that they have to compete for capital on an equal basis. This is good for shareholders because it helps drive down costs for companies. At the moment we think that market liberalisation is one of the key drivers of the improvement in the European business environment that has been such a consistent feature of the last 10 years."