Following the French election results, French stocks have seen dramatic shifts in response to the electoral outcomes. Leading up to the first round, French stocks underwent notable volatility as fears mounted over potentially expansive spending under either a far-right or far-left majority, posing risks to the country’s already fragile fiscal stability. In any case, the far-right National Rally’s victory brought a sense of relief, leading to a brief post-election rally.
Despite this initial optimism, it must be noted that a right-wing government, traditionally more conservative in fiscal policy, could spell trouble for certain sectors. Industries heavily reliant on government subsidies, such as renewable energy, or correlated to social welfare, may face headwinds as spending priorities shift. Also, sectors sensitive to labor laws and regulations, including tech startups and healthcare, could encounter regulatory challenges.
The following three French stocks fall into these industries and should thus be carefully reviewed for potential divestment. The first candidate operates extensively in renewable energy and is likely to face reduced government subsidies and support following a shift towards fiscal austerity. The second, a major pharma player may face a tougher regulatory landscape, which could impact its profitability margins. Finally, a leading retailer faces risks associated with potential changes in welfare policies that could impact consumer spending on retail products.
Engie S.A. (ENGIY)
The first stock that came to mind as a potential sell following Le Pen’s first-round lead in the French elections is Engie S.A. (OTCMKTS:ENGIY). Engie is a leading French energy player, with operations spanning electricity, natural gas, and energy services. A right-wing government is likely to favor energy security. However, Engie has a significant presence in renewable energy, including wind and solar power projects. Its asset portfolio aligned with France’s environmental initiatives under prior administrations, but this may no longer be the case.
Historically, conservative governments have prioritized fiscal discipline, which may lead to a reduction in government subsidies and incentives for renewable energy projects. Since Engie’s profitability heavily relies on these subsidies and a favorable regulatory landscape, the company may end up facing challenges this time around. A conservative government is likely to embrace traditional energy sources over renewables, which may lower demand for Engie’s green energy, further hurting the company.
Sanofi (NASDAQ:SNY)
Another stock that could potentially be negatively impacted by a right-wing government in France is Sanofi (NASDAQ:SNY). Sanofi is a global pharma giant known for its extensive portfolio of medicines and vaccines. Considering that Sanofi operates globally, it may be less vulnerable to changes in French regulation. That said, it won’t be immune against unfavorable policies concerning the healthcare sector.
The National Rally may impose cost controls and efficiency in healthcare spending, which could lead to stricter pricing regulations for pharmaceutical products. Under such policies, Sanofi may face increased pressure on pricing and profit margins. Further, the party could prioritize reducing public spending on healthcare and pharmaceuticals, potentially hurting Sanofi’s revenue from government contracts and reimbursements.
But again, I want to emphasize that Sanofi is likely to prove more resilient among its sector peers. The company features an outstanding track record, including raising its dividend for 29 consecutive years. Accordingly, it is likely to remain a top pick among investors looking for dependable dividend growth in European equities.
Carrefour (CRRFY)
The final pick on my list of stocks for potential sale after the first round of French elections is Carrefour (OTCMKTS:CRRFY). Carrefour is a leading French retailer serving millions of customers yearly through its network of hypermarkets, supermarkets, and convenience stores.
You may want to consider selling Carrefour stock if you have a long position since changes in welfare under a right-wing government could negatively affect the company’s prospects. As you know, a more conservative administration is likely to introduce reforms that reduce welfare benefits or tighten eligibility criteria. This may directly impact disposable income among lower-income consumers. In turn, this could result in lower spending on retail products, including groceries and household essentials offered by Carrefour.
Furthermore, any shifts in taxation policies favoring higher-income brackets could reduce disposable income among middle- and lower-income consumers. Wider income inequality might directly affect Carrefour, as these consumer categories form a significant portion of its customer base. Thus, you should be wary of Carrefour’s investment case despite the rather recession-proof nature of supermarkets and grocery stores.
On the date of publication, Nikolaos Sismanis did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.