If Macron wins, investors in European equities would sleep safer at night: Geoff Lewiss, Manulife Asset Management

In a chat with ET Now, Geoff Lewis, Manulife Asset Management, says though the Macron-Le Pen race does not appear to be close, one cannot rule out a freak victory of Le Pen. Edited excerpts:

ET Now: Looking at French elections, what does Macron and Le Pen’s philosophies mean for equity markets at large? Is there a sense of protectionism that both are talking about?

Markets were expecting that there will be a second round runoff between Macron and Le Pen and the odd still favours Macron in the second round because two of the candidates Harmon and Fillon have both endorsed Macron for the second round.
This was pretty much the polls getting things right this time unlike Brexit, unlike Trump. We have two candidates and even though it seems Macron is likely to win the Presidential Elections, first of all, he does not have a majority in the assembly.

Even if his party does quite well, he will have to form some sort of coalition government and that is quite unusual for France. We see him as liberal as standing for the liberal European order and as standing for reforms. The Macron victory would be friendly for markets. Since the Eurozone economy seems to be now engaging on a stronger recovery, that would be a quite a good sign for Eurozone equities.

At the same time, I do not think we heard the end of Marine Le Pen. She basically now seems to be the opposition in France and according to opinion polls majority of vote is no longer looking at the National Front as something that is distasteful or too extreme. She has made a lot of ground there actually even if she does not win this presidential election.

ET Now: Macron may be winning the elections but it is too tight a call. Do you think markets at the current juncture are not pricing in a Le Pen victory and if a Le Pen victory happens, what could be the immediate market reaction?

In case of a Le Pen victory, the immediate market reaction would be risk off. She would like to hold a referendum on taking France out of Euro. It is unlikely that she would be able to do that duw to Euro constitutional blocks but it also holds out the possibility of a logjam in France like it was in the US under Obama. There us a national assembly which is unlikely to have a national front majority. So you will have a president and the assembly trying to push policy in different directions. So definitely a risk off is not priced in.

Markets have been assuming that it would be a Macron, Le Pen second round and the polls give Le Pen only 30% of the vote. It appears the second round is not close but then I do not think we can rule out a surprise as we saw last year with election of President Trump and with the UK Brexit vote. So we are not over it yet but if Macron wins the second round, then the investors in European equities would sleep safer at night.