French elections and Eurozone equities

Uncommon truths

Welcome to Uncommon Truths, Paul Jackson and Andras Vig’s regular in-depth look at the big topics impacting markets.

The first round of French elections took place on 30 June 2024, with the second round due on 7 July. The surprise calling of the election had a detrimental effect on French and peripheral Eurozone bonds, Eurozone equities and the euro.

Markets fear an extreme outcome (either far-right or far-left) and bigger budget deficits (the 2023 5.5% deficit/GDP ratio has already started a corrective process with the EU). This, and general antagonism towards the EU at either end of the political spectrum, suggests a worsening of the relationship with the EU and perhaps a reversal of the EU project.  

Given the uncertainties about the outcome of the election, we consider a range of scenarios and conclude that the most likely is some form of temporary administrative solution that would be more reassuring for markets than an extreme outcome.

On this basis, we continue to like Eurozone equities on the basis of valuations and cyclical/structural considerations.   


The optimal portfolios are theoretical and not real. We use optimisation processes to guide our allocations around “neutral” and within prescribed policy ranges based on our estimations of expected returns and using historical covariance information. This guides the allocation to global asset groups (equities, government bonds etc.), which is the most important level of decision. For Uncommon Truths, the optimal portfolios are constructed with a one-year horizon. 

We’ve chosen to include equities, bonds (government, corporate investment grade and corporate high-yield), real estate investment trusts (REITs, to represent real estate), commodities and cash, on a global level. We use cross-asset correlations to decide which decisions are the most important. 

Using a covariance matrix, based on monthly local currency total returns for the last five years, we run an optimisation process that maximises the Sharpe Ratio. Another version maximises Return subject to volatility not exceeding that of our Neutral Portfolio. The optimiser is based on the Markowitz model. 

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.  

Important information

  • Views and opinions are based on current market conditions and are subject to change.

    This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.