Geoff Cutmore - Morning Thoughts

Paris in the Springtime - how to erase the political discount.

There are few cities that match the beauty of Paris in the Spring. My trip here to cover the first round of the Presidential election has reminded me again of its seductive powers. Even better that one of the highest voter turnouts in French history has been accompanied by glorious sunshine.

No one can doubt the integrity of the democratic process. But we will have to wait longer for evidence the impending change in government will bring with it a political re-rating of the stock market.

While French multinationals trade in line with their international peers this has been achieved in spite of the domestic economy. The EU's second largest country is lagging near the bottom in terms of growth rate and unemployment.

Strategist Edmund Shing at Kepler Landesbanki says that is a drag on the prospects for retail stocks and companies dependent on domestic demand. At this stage he says there is no indication that either Sarkozy or Royal will be a catalyst for change. Don't expect any news on this anytime soon.

Sarkozy is the obvious markets choice, he has talked of changing the 35 hour working week and lowering taxes. But he also champions protection of French companies and feels free to attack the European Central Bank in an anti-market fashion. He could change his tune once in power, but as Shing makes clear there is no new Thatcher or Blair for France! Change is likely to be slow and incremental rather than immediate and radical.

The message appears to be don't rush to buy this market anticipating a re-rating. Having said that don't ignore France completely. Business has adapted and survived. There is an opportunity - but it needs the politicians to make some tough decisions. People embrace change when the status quo means they are likely to get poorer. That is already happening in France. Let's hope the reform minded Sarkozy holds his nerve.

French Elections: Focus on Business