The rise in support for far-right parties and the French President’s shock decision to call early parliamentary elections has shaken European markets, falling more than 4% and 6% in the Eurozone and France respectively.

While, from an Australian perspective, last week’s European upset could easily be dismissed as yet another interesting, but distant, ‘wrinkle’ in the current world order, it’s perhaps worth taking a little more seriously.

The worry?

Investors fear that a far-right win could lead to greater economic uncertainty, and ultimately a break-up of the Eurozone, which would plunge the world’s third largest economic region into chaos - and of course, flow through to global growth. Remember the squeamishness triggered by ‘Grexit’ and ‘Brexit’? This would be much worse.

How serious is the current threat?

Less than what is being portrayed in the media. While Right-wing parties performed better than expected, putting things into perspective, their proportion of seats rose merely from 19.6% to 22%. So yes, with a greater proportion of nationalists in the European Parliament, hot-button issues such as immigration, climate change, and protectionism are likely to get more airtime, but this shouldn’t be exaggerated either as centrist parties still massively dominate with 63% of seats.

French elections…

Emmanuel Macron’s election gamble is a different matter. While Macron himself will remain President until 2027, if his centrist party loses next month’s Parliamentary elections, and therefore control over domestic policies, Macron’s government will essentially become ‘lame-duck’ status until 2027.

Macron’s fervent hope is that either (a) his centrist party wins next month, or (b) the far-right, with no practical experience governing, will prove themselves to be incompetent before the presidential elections in 2027, therefore swinging public support back to the centre. Again, it’s a big risk.

Implications for investors…

In a period of significant global turmoil, French election uncertainty and its flow-on effects to the rest of Europe and beyond, is yet another issue the world (and financial markets) will need to to absorb and adjust to, putting additional pressure on returns from shares. That said, for now, centrists are holding.

If you are concerned about your investment, superannuation, or retirement strategy, please don’t suffer in silence, reach-out to your financial advisor, or contact us.

Rick Maggi, CFP