Brace for volatility as France votes in a four-way race to elect

 President on Sunday Investors ultimately expect victory from the centrist Emmanuel Macron but are fretting over the likelihood of a strong showing by either far-Right candidate Marine Le Pen or far-Left candidate Jean-Luc Mélenchon. Global markets, which have had to weather a Brexit and a Donald Trump victory, are now edgily watching the first round of the French elections slated for Sunday. The polls show a nail-bitingly close race between four candidates, setting the stage for heightened volatility. Investors ultimately expect victory from the centrist Emmanuel Macron but are fretting over the likelihood of a strong showing by either far-Right candidate Marine Le Pen or far-Left candidate Jean-Luc Mélenchon. Two candidates qualify for the second and final round on May 7. The main risk of Le Pen or Melenchon getting to the final runoff and coming to power is that it could spell the beginning of the end for the eurozone. Investors globally have been hedging ahead of the vote by piling into safe haven assets like US Treasury and gold, and buying yen against the euro. A surge in the polls by Melenchon has again reminded investors of the anti-establishment sentiment sweeping across large parts of the world, and underlines the fact that this feeling can be harnessed for their ends by the Left as well as the Right, even if the latter has been the bigger beneficiary in recent times. Le Pen is also doing well in the polls and has a high probability of getting one of the two spots in the runoff. 

The big question is who will she face in the second round The market’s favourite is Macron. This 39-year-old former banker has never held public office and has emerged as France’s last, best, and perhaps only chance of staving off Le Pen to emerge as president in May. The other centrist, Republican François Fillon, has a slender hope. But what could rattle markets more is a victory for Melenchon, who has promised to rework the treaties that set the framework for the EU and then hold a referendum on whether to remain in the bloc. Depending on how well Le Pen does in the first round, the market could react quite violently. If her runner-up is 6, 7 points behind her, many people would see that as her victory. It is an easy generalisation to say if Le Pen wins, France pulls out of the euro and the EU collapses. For France to pull out, there has to be a vote in parliament. There is a parliamentary election in June, and it in fact could be the more important election. Nevertheless, the Presidential election will help gauge the mood of the nation. The bigger near-term risk is a Le Pen victory which could foster other nationalist groups in Europe. 

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