Spanish stock market could fall up to 16% if political chaos grips France

Investors will be very careful to the results of the legislative elections that France will hold on Sundayto decide whether they will continue to flee assets linked to the French market on Monday or take positions again. Although it is first round After the elections, analysts hope to have clear clues about the future composition of parliament and the color of government with which it will have to coexist. President Emmanuel Macron.

At this point, uncertainty has taken its toll. In fixed income, the risk premium in France has risen From 50 to more than 70 basis points. The CAC 40 index is accumulating in the stock market. a loss of 7.4% over the past month. And in currencies the euro fell From 1.09 to 1.07 US dollars.

Most analysts believe that this investor reaction is notor a discount on worst-case scenarios This may come out of the political situation in France.

In case of variable income City points out that “markets are downright optimistic as the most likely election scenarios imply a further decline in the French stock market.”

CAC 40 could suffer, says Wall Street official additional 5% reduction (if there is a parliamentary blockade), 10% (if there is a clear majority among the far right or far left, which allows them to implement the corresponding state programs) and even 20% (if we add Macron’s resignation to the political turn in the government).

The worst thing for European investors, according to Citi, is that difficult to isolate France. According to the bank’s calculations, for every 10% rise or fall in the Paris Stock Exchange, Euro Stoxx does it at 8.2% and Ibex at 8.4%. That is, if French parquet down 20%the Spaniards could do it more than 16%. Only markets Germany and Italy They are more sensitive than the Spaniards to what is happening in France.

At the moment the sensitivity was lower: Ibex fell 3.3% over the past month. James Reilly, Capital economics, believes that only in the worst case of a major debt crisis in France would he take the risk premium at the level of 200-300 basis points, there will be a strong contagion of all European stock markets. “In this case, the fall in the stock market in the region will resemble to those 2011-2012.“, It is said.