Asian investors mull impact of Le Pen win

Asian asset prices would take a short-term hit if Marine Le Pen were to record an unlikely win in the French presidential election on Sunday, but the long-term impact would be limited, argue a majority of investors – though some disagree.

Le Pen faced rival Emmanuel Macron in a heated debate last night, further stoking tensions ahead of the poll.

Jeffrey Tan, Hong Kong-based regional investment director at Belgian insurance firm Ageas, said victory for the National Front leader would in fact benefit Asia in the short term. He argued that investors would allocate there at the expense of Europe, fearing the consequences of her policies. Tan is slightly overweight Asian bonds and equities.

The region has already seen inflows from institutions shifting away from European assets in the run up to the election, as a hedge against the potential economic fallout of a Le Pen success and bumpy progress on Britain's exit from the European Union. In the week to April 28, flows into Asia equities were nearly double the total for the previous three weeks, according to EPFR. 

Bryan Collins, Hong Kong-based fixed income portfolio manager at Fidelity International, said this rotation from Europe to Asia was a long-term phenomenon and agreed it would accelerate in the event of Le Pen winning.

He pointed to a structural shift in recent years, whereby more and more European investors have been boosting their exposure to Asia.

However, John Woods, Asia-Pacific chief investment officer at Credit Suisse, argued that growing recent allocations to Asian equities reflected growing investor confidence that a Macron win was coming rather than worries that Le Pen would take office.

“The probability of a Le Pen victory is so low that to position for it is not a valid market strategy,” said Singapore-based Woods. “The outcome of the French election is now one less risk for the world to worry about.”

Polls yesterday suggested that centrist candidate Emmanuel Macron would take around 60% of the vote against 40% for Le Pen, having successfully predicted the outcome of the first round of voting on April 23. 

Short-term hit

That said, the short-term impact of a far-right success would be more pronounced than the long-term consequences, noted Woods. He said the French parliament would block Le Pen’s more extreme policies, most notably her plans to take France out of the EU.

Woods remains positive on Asian assets, above all equities. “On a pure value-seeking basis [the Asia] story makes sense," he said.

Catherine Yeung, Hong Kong-based investment director at Fidelity International, agreed that a Le Pen victory would spark a sharp sell-off that would harm Asian asset valuations.

“If Le Pen wins, short-term investor sentiment could be weighed down, impacting perceived riskier assets such as emerging-market equities,” said Yeung. This would present attractive buying opportunities in Asia, she noted.

Like Tan and Woods, Yeung agreed that the long-term impact on Asian assets of a Le Pen win would probably be muted.

“Based on our analysis, the impact of a Le Pen victory on Asian companies’ earnings and fundamentals would be minimal,” said Yeung. She added that Fidelity’s Asian equity portfolio managers would be unlikely to change their positioning if she won on Sunday.

Over the long-term, Tan said, Le Pen taking power would be less destabilising for global markets than Donald Trump becoming US president, on account of her relatively clearly stated economic and political aims, to which companies and investors can adjust.

“[Le Pen] is less unpredictable than Trump,” he said, citing the latter’s willingness to change his mind.

Of course, some might point out that the US president's capacity for U-turns seemed to increase sharply after he took office.