Goldman Sachs says French assets remain caught between the 2027 presidential election and a deeper fiscal problem: debt near 120% of GDP and a fragmented parliament that may struggle to cut spending. The bank sees cheaper valuations but stays cautious on French equities, preferring French bonds and favoring German stocks instead.
France has entered a new political cycle, with Marine Le Pen leading first-round polling above 30%, ahead of centrist Édouard Philippe and far-left candidate Jean-Luc Mélenchon, who each poll around 15%-20%. Goldman Sachs gives Le Pen a 68% probability of winning, while prediction markets put the odds at about 30%.
Fiscal credibility, not the vote, worries markets
The bigger concern for investors is France's fiscal credibility rather than who becomes president. Public debt is approaching 120% of gross domestic product, and the fiscal deficit remains above 5%. A fragmented parliament could make it hard for the next government to deliver the spending cuts needed to stabilize debt. French 10-year government bond yields have reached 4.2%, their highest level since 2008.
Meanwhile, the OAT-Bund spread, which tracks the gap between French and German 10-year yields, has widened beyond 80 basis points. Goldman expects it to stabilize around 70 basis points but views 100 basis points as a reasonable stress scenario, and it would grow more interested in French assets if the spread approached that level.
Equities have already priced in some risk
The CAC 40 has been Europe's weakest major large-cap index in each of 2024, 2025 and 2026, underperforming the STOXX 600 by 7.8%, 5.2% and 6.8% respectively. Yet only about 15% of the index's revenue comes from France, which limits its direct link to domestic politics. Goldman's France Domestic basket, by contrast, draws roughly half its revenue from France and leans on industrials, financials, real estate and consumer discretionary firms. A 10-basis-point widening in the OAT-Bund spread has historically tracked a 3% decline in the CAC 40 and a 4% decline in the France Domestic basket.
Cheaper valuations still aren't cheap enough
Domestic French stocks trade at roughly 10 times forward earnings, a 35% discount to the broader European market, but Goldman says political uncertainty could justify an even deeper discount. French banks, the highest-beta exposure to political risk, trade near eight times forward earnings and have still gained about 140% since January 2022, leaving less room to rerate without political clarity. Repeated extensions of France's corporate surtax have also pushed effective tax rates to around 30% for large companies, cutting CAC 40 earnings by roughly 2 percentage points.
Goldman does not expect a systemic crisis, noting the Rassemblement National has abandoned its earlier anti-euro stance. Still, it currently prefers French bonds over domestic equities during weakness and favors German equities instead, where earnings could benefit from Germany's fiscal and investment programme.
Source: Investing.com
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