There’s a French connection between world markets and Sunday’s first round election between Marine Le Pen and Emmanuel Macron.

Markets around the world are soaring on the news that early polling suggests the centrist candidate Macron will be the likely winner of the runoff election on May 7 against his political rival, the far-right candidate, Le Pen.

Polls indicate that Macron will see a victory on Election Day.

France is undergoing an internal battle, much like the ones happening all over the world; to stay the course as a Western democracy or move toward nationalism and populism.

So why are the poll results of one candidate in France affecting your portfolio here in the US?

Fear of a Frexit

Marine Le Pen is what’s known as a “Euroskeptic.” Meaning she’s skeptical that France should remain a part of the European Union as it stands.

She believes France should have independent sovereignty over its borders and wants to put the kibosh on free trade. Le Pen wants to overhaul the country’s immigration policy and take a harder line on terrorism and non-French nationals.

Marine Le Pen

Most importantly, she’s made it clear that should she win, it would be her intention to re-negotiate France’s position in the European Union (EU) by calling for a referendum, similar to what the UK did when it voted on Brexit.

Macron on the other hand, would be more likely to stay the course, strengthen ties to Germany, stay part of the EU and continue trading with the rest of the world.

Back to the Franc?

Le Pen may be keen on bringing back the franc. She’s pledged to convert French debt into a new national currency, an event that could cause the euro to collapse. If this happens, it would be the first to ditch the euro since the currency was created in 1999.

France abandoning the euro and all it would entail could wreak economic havoc on global markets. This is another reason why Macron’s high polling numbers are causing the markets to sigh with relief. A Macron win means France will stay with the euro and preserve the status quo.

Surprises happen

Polls, schmolls. They’ve been wrong before. Experts and forecasters scoffed at the idea that the British people would vote to leave the European Union. President Donald Trump? Forecasters around the world were taken by surprise and market dipped (but rebounded) upon the news.

As recent months have proven, the day-of results are what actually matters.

What’s the takeaway?

After Brexit, markets are paying more attention to Frexit risk to prepare for the shock in the unlikely case that Le Pen wins.

A bit longer term, as the terms of Brexit become known or if France chooses to implement a Frexit, there’s the potential for even greater uncertainty. There may not even be an EU without France and Great Britain! And that may spell chaos for the markets.

In short:

  • U.S. markets may not feel the weight of Brexit for a while but the consequences of an EU without France (and France leaving the Euro for the franc) may cause markets to spasm.
  • Stash firmly believes in taking a long view and adding to your investments on a regular basis with Auto-Stash. Your investments are meant to last through moments of political turbulence and times of volatility.
  • Stay strong and keep diversified.