The highly anticipated French National Assembly election is set to take place this weekend, and Citigroup analysts warn that in the worst-case scenario, the French stock market could see its market value plummet by as much as 20%.
Analysts at Citigroup, led by Beata Manthey, stated in a report released on Wednesday that if either the far-right National Rally led by Marine Le Pen or the left-wing coalition "People's Union" wins the election and attempts to implement the majority of their tax and spending plans, it could force current President Emmanuel Macron to resign.
In this worst-case scenario, the price-to-earnings ratio of the MSCI France Index could drop significantly to 11 times, from its current level of approximately 13.5 times.
Citigroup indicated that the most market-friendly outcome would be a victory for the centrist alliance or a "restrained" right-wing victory, which would make it less likely for the fiscal deficit to widen sharply.
Such an outcome could lead to a 5% increase in the market value of French stocks.
Manthey suggested that a neutral scenario would see the parliament deadlocked, maintaining fiscal risk and potentially causing the price-to-earnings ratio to fall by up to 10%.
Regardless of the outcome, "the elections pose a significant ongoing risk to both the French and European stock markets," Manthey said.
Over the past month, influenced by the upcoming election, the French CAC Index has fallen by 7%.
Manthey noted that the market currently reflects a relatively favorable outcome, but this may ultimately prove to be "overly optimistic."
