Markets took fright at the results of the French and Greek elections in early trading on Monday. But by the afternoon the fear had largely dissipated, as investors became more comfortable with an outcome that was broadly in line with forecasts. Financial Times editor Richard Milne quotes ABN Amro Private Banking's Chief Investment officer Didier Duret.
Markets calm down after election results
By Richard Milne, Capital Markets Editor,
Markets took fright at the results of the French and Greek elections in early trading on Monday. But by the afternoon the fear had largely dissipated, as investors became more comfortable with an outcome that was broadly in line with forecasts.
Many analysts expect volatility to persist as markets try to judge which policies François Hollande will adopt as French president - and if, and how, a Greek government will be formed.
“The uncertainty has shifted from poor outcome uncertainty to policy uncertainty,” said Marc Chandler, currency strategist at Brown Brothers Harriman in New York.
Some even cheered Mr Hollande’s victory as potentially giving a more balanced view to eurozone talks through his desire to promote growth rather than just austerity.
Didier Duret, investment chief of ABN Amro private bank in Geneva, said: “This new shared European agenda will be arduous to bring to life: it will bring short-term uncertainty. But the other side of the coin is that it will bring more weight on growth.”
Market movements highlighted that debate. European bourses fell in early trading while French, Italian and Spanish borrowing costs rose as investors worried, particularly, about the messy Greek result.
But by lunchtime the mood changed, with European shares recovering and French borrowing costs falling as some investors decided that the selling was overdone. Greece remains a concern, almost three years after it sparked the eurozone crisis. Some in the markets fear that the difficulty in forming a government in favour of the second international bail-out agreed this year could eventually jeopardise Greek membership of the euro.
European economists at Citi raised the likelihood of what they called a “Grexit” from 50 per cent to 50-75 per cent. Others dispute whether the odds are that high. “The risks have clearly increased that [Greece] can’t form a pro-programme government. But it’s one thing not to agree a government at the moment and something else for your country to head for an uncontrolled default and possible exit from a currency zone,” said Michael Krautzberger, head of European fixed income at BlackRock, the fund manager.
In France, the worry was that Mr Hollande’s emphasis on growth, and calls to renegotiate the fiscal compact pushed by Germany, could lead Paris into conflict with Berlin. But investors such as Nick Gartside at JPMorgan Asset Management argued that such concerns were overblown. “If a growth compact is tacked on to the fiscal compact it should be something markets should welcome,” he said.
Investor interest in the relationship between Mr Hollande and Angela Merkel, the German chancellor, will be intense, as is the focus on next month’s French parliamentary elections. Mr Gartside sounded a warning to
anyone hoping that political risk might go away. He said: “2013 sees Italian and German elections. This
saga of elections will just go on and on.”
Copyright The Financial Times Limited 2012
(c) 2012 The Financial Times Limited