The French Election and Implications for Dividends

April 4, 2022

The French CAC index soared to a 9-year high and the euro traded at a 5-month high when Emmanuel Macron, a man with no electoral experience, became president of France in 2017. The winning of the former investment banker boosted investor confidence, leading him to defeat centre left, centre right, and far right. President Macron has always been business-friendly, urging young French citizens to “become billionaires,” not fear globalisation, and embrace the EU.

As President Macron launches a campaign for re-election in April 2022, what will be the impact on companies and their dividend policies? He is certainly counting on an economic boom that his policies ushered in. Under his able leadership, the French unemployment level fell to its lowest in 13 years, in Q4 2021. France not only bounced back from the pandemic crisis in 2021 but also posted its strongest growth in 52 years at 7%.

He has also assumed a strategic role of a mediator between Russia and Ukraine. However, his policies have been often regarded as pro-rich. Although this bodes well for businesses, it could isolate many young voters, especially those who like what his opponent and far-right presidential candidate, Marine Le Pen, has to offer.

Polls Suggest a Macron Victory

The next 2 prominent candidates for the French presidential election are Marine Le Pen and Eric Zemmour. Zemmour’s campaign is based majorly on an anti-immigration rhetoric and offers little in terms of economic policies. Le Pen, on the other hand, was a staunch supporter of France exiting the EU previously, which she has given up on since 2017.

However, young voters might be in favour of her promises to help reduce the cost of living, as she plans to abolish income tax for the under-30s. She might also slash VAT on energy bills. Although she has sharpened her game since 2017, it currently seems unlikely that Le Pen will win.

The polls show both Macron and Le Pen proceeding to the second round (81/100), and a high probability of Macron being re-elected (91/100). If he wins, this will result in a French president getting re-elected for the first time in 2 decades.

What Could Lead to Macron’s Defeat?

A prime concern for voters at present is the surge in inflation, which is eroding their purchasing power. France’s CPI soared to 3.6% YoY in February 2022, the highest since 2008. This is expected to continue with the Ukraine conflict leading to a surge in oil prices. Macron has a number of other issues to tackle as well. France is one of the top indebted nations in the EU. The country had a public debt ratio of 117.8% in 2021, which is expected to decline only to 116.3% in 2022.

Reforming France’s complicated and expensive pension system was one of Macron’s primary goals in the 2017 campaign, which he has failed to achieve. Further, his proposals triggered weeks of protests and transport strikes, before Covid-19 hit. These proposals have been put on hold since then and could emerge as a primary concern for voters.

Impact on French Companies if Macron Wins

Under his regime, new business registration hit record levels. A surge in foreign direct investment has made France an emerging market for tech companies. In 2019, Macron had promised to convert France into a start-up nation, with 25 French tech firms with a valuation of over $1 billion. In January 2022, French company Exotec became the 25th unicorn, fulfilling its target 3 years in advance.

Macron has recently announced plans to build 6 new nuclear reactors in the country to attain carbon neutrality by 2050. The French president stated that the state will boost its stake in strategic energy firms and increase defense spending.

Macron’s particular target will be Électricité de France SA, commonly known as EDF, in which the state already has an 84% stake. The government has been formulating a plan to revive the debt-ridden entity and reorganise its business model towards nuclear energy. EDF recently declared a cash dividend of €0.28, ex-div date May 18, 2022. It is expected to declare a dividend of €0.32 in November 2022, with ex-div date November 10, 2022.

Macron has also indicated plans of building a “European metaverse” to give competition to US tech firms like Facebook and Microsoft. He has plans to raise the retirement age to 65 from the current 62. He also intends to lower inheritance tax and boost public investments in green energy and emerging technologies. Electric vehicles are another sector where we could see significant investments under his leadership. Altogether, his reforms represent annual budgetary spending of €50 billion till 2027, which includes tax cuts worth €15 billion.

In short, President Macron’s re-election would benefit technology firms and renewable energy initiatives. This may be an attempt to appease the public, who are unhappy about rising energy bills. Overall, with a pro-business President like Macron, French companies could do well and pay out higher dividends going forward.

Predicting Dividends the Woodseer Way

President Macron’s “crisis” presidential manifesto comes at a time of high global uncertainty. The impact on companies might be on the positive side however, given his take on globalisation, tax reform and creating profitable companies that further create jobs. His tax proposals also have a pro-business take.

Woodseer, with its analyst + AI approach, helps investment firms predict dividends for French companies, especially during this period of political uncertainty in Europe. As the second-largest EU economy proceeds towards elections, investment managers can count on reliable and accurate dividend forecasts to make strategic portfolio decisions. Contact us to learn more.

With thanks to Matthew Riding, Cedar Cianciulli & Miranda Bass