Buy France, sell Germany

There are times when it could pay to be bullish on France and bearish on Germany, says Charles Gave in a Gavekal Research daily note. This is one of them. If the self-proclaimed Thatcherite Franois Fillon wins the French presidency, there should be scope for "a handsome rally" in French equities, at least compared with German ones, as the prospect of an improving business environment boosts confidence. The centrist independent candidate Emmanuel Macron has good reformist credentials, as we pointed out last week by French standards at least. So he could also spark a bull run.

Conversely, says Gave, if the far-right or far-left candidate wins he reckons the odds are 50% on this and the euro heads towards break up, the newly reintroduced franc will tank, giving the profits of the multinationals that dominate the blue-chip CAC 40 index a major boost. That would lead to "a fabulous" bull market in local currency terms. The "Frexit" scenario also implies that a new German currency would soar, throttling the earnings of the local stockmarket's heavyweight exporters and sending equities sharply lower.

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