By: Earnest Wright | 04-21-2017 | News
Photo credit: Zurijeta |

What are the Odds of Le Pen Wiining?

GaveKal’s founder has warned that undecided voters are bad news for Macron. It turns out that markets are underpricing the prospect of Marine Le Pen wining the French presidential elections.

Charles Gave, who is the founder of GaveKal Research has concluded that Macron will be adversely affected by undecided voters. Gave predicted Donald Trump’s victory during last year’s presidential election, He’s now betting on a win for the anti-euro National Front candidate.

It turns out that markets are skeptical of the fact that Le Pen’s momentum is a slow-moving reaction against the men of Davos. The same trend was observed with Brexit and President Trump.

Gave has advised clients to adopt long positioning in the pound as the United Kingdom would benefit from haven bids. This is based on the fact that prospect of a Le Pen victory is imminent. Didn't you dumbshits witness the Trump Victory?

Gave’s expertise spans over a period of more than 40 years. Gave has considered the haven bids and shorts on inflation-linked German bonds amid the risk of deflation in the euro area.

Recommendations from the French economist indicate that bets on the likelihood of an outperformance of publicly-listed European multinationals.

This would be based on the outsize share of income in foreign currencies. Dudeman also points out that a basket of high-quality stocks is a safer bet compared to euro-denominated government bonds. This is especially for investors obliged to invest liquidity in euros.

Mark Tinker, head of AXA Framlington Asia released a statement saying that the market is talking about the nightmare scenario but it’s not pricing it in.

Mark Tinker is a client of GaveKal and admirer of Gave’s tail-risk warnings over the past year. Tinker pointed out that after Sunday, there will be more information to make a considered risk-return wager to trade and hedge. However, he also pointed out that high-quality European companies and German bonds are an attractive bet.

There’s an infatuation within markets that seeks to preserve the status quo. France’s benchmark CAC 40 Index rose 1.5 percent as polls indicated that Macron was ahead of Le Pen. 

On Friday, the euro held steady as French bonds gained after a police officer was shot in Paris. This may have influenced the outcome of the first-round vote as pointed out by some analysts.

For the first time in three days, the CAC 40 dropped by declining by 0.5 percent. However, Gave pointed out that the stars appear to be aligning for the National Front candidate. Gave pointed out that it is unfortunate that two runoff candidates are likely to be determined by voters who are undecided, adding that it will be a bad omen for the centrist contender since the undecided voters are as many as 40 percent.

Gave also indicated that at least half of the far-left and half of the center-right won’t vote for Macron in the second round if he is pitted against Le Pen, believing he is tainted by his association with Francois Hollande’s government, and would rather abstain.

Francois Fillon’s momentum has been curtailed by graft charges, and a sizable chunk of Macron’s followers who would probably rally to Le Pen’s cause if she were to face leftist Jean-Luc Mélenchon in the final round. Gave only sees Fillon with a chance to defeat Le Pen in the run-off.

However, if LePen emerges victorious, the euro would tank as markets would price in the prospect of its dissolution, rather than focus on Le Pen’s legislative hurdles to exit the single-currency bloc. The vanishing bids are bound to cause unquotable French and Italian bonds as the European banking system would be plagued by seismic turmoil.


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