Investors' appetite for Paris diminishes after yellow vests protests

Pedro Gonçalves
Investors' appetite for Paris diminishes after yellow vests protests

France's worst street protests in decades, with burned out cars and debris cleared from the streets of Paris and other cities, is raising market uncertainty and doubts over the planned fiscal reforms in the country. Investors warn that there could be less appetite for international finance leaders to relocate activities in France, notably against the backdrop of Brexit. 

"The planned tax cuts, as well as the reversal of the proposed fuel tax will be offset by rising political uncertainty and a fall in confidence (of both domestic and international investors) due the likelihood that Macron's pro-business reforms will have to be considerably toned down. All in all, we believe that there will be slightly negative growth in 2019: We have just reduced our forecast from 1.5% to 1.4%," Amundi said in an analysis of the situation. 

Europe's largest fund manager, with €1.45tn of assets under management, added: "Financial markets are increasingly influenced by the dominance of political themes, a trend which has become even more pervasive this year. We believe that this phenomenon will continue into next year, and that European risk assets and equities, in particular, are bearing the burden of this political risk."

The French central bank has already slashed its growth forecasts for the fourth quarter largely due to the impact of the often violent anti-government protests which shut down central Paris more than once in the last month.

"It's a catastrophe for trade. It's a catastrophe for our economy," the French finance minister Bruno Le Maire said.

Looking at the equity markets, Frédéric Rosamond,  senior portfolio manager at Amundi warned that the market will increasingly call into question Macron's ability to push for more reforms.

"Looking ahead, one of the key drivers to assess the French equity market in the coming months, is the evolution of consumer confidence. Announced measures could boost purchasing power and this could reinforce our positive view on French consumers. In our view, in 2019, purchasing power will record its strongest growth since the financial crisis, very likely above 2% YoY.

"France is cutting taxes and spending some money to get pro-growth supplyside reforms through and this could be positive for the market. On the other hand, the market will increasingly call into question Macron's ability to legislate additional pro-growth reforms, beyond the ones he has already delivered," he said.