PIG TODAY-Watch for market shocks if Le Pen wins, says J.P. Morgan

Victory for Marine Le Pen in the French presidential election could force the market to dust off its playbook from the eurozone sovereign crisis of 2011, according J.P. Morgan Cazenove.

Equity strategy analysts at J.P. Morgan Cazenove, led by Mislav Matejka, said in a note Monday that they expect “far-reaching” consequences in the event Le Pen prevails over Emmanuel Macron and conservative candidate François Fillon in the battle for the presidency.

National Front leader Le Pen, an anti-European Union candidate, and independent candidate Macron are seen as the most likely to proceed to the second round of the presidential election, scheduled for May 27. The first round is due to take place on April 23.

Markets reacted positively after the U.K.’s vote for Brexit in June 2016, and again on Donald Trump’s victory in the U.S. presidential in November that year. The J.P. Morgan analysts said they do not expect a repeat in the event Le Pen sees off Macron and Fillon. French political risk should not be “downplayed”, the analysts said, adding that a victory for Le Pen is not impossible and would not be “benign”.

The analysts said: “In our view, if a Le Pen win scenario comes to pass, the playbook of 2011 should be used: Peripheral spreads would widen significantly, corporate and consumer confidence would take a knock, credit flows would collapse, and markets would start focusing on redenomination risks.”

Eurozone equities look set to benefit in the event Le Pen loses, according to JP Morgan: “If Le Pen loses, we think eurozone equities will see a return of significant global investor flows, to the tune of at least 10% of AUM [assets under management], which is likely to result in the region’s outperformance, both in local and in common currency terms.”

Source: marketwatch.com