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The French Presidential election, to be held on 23 April and 7 May, is considered a key political risk this year. Based on current polls, our economists believe Emmanuel Macron, who is campaigning on a pro-EU, pro-open border and pro-business platform, is likely to be elected President. However, it is debatable whether he will have much power, as he is likely to face a period of “cohabitation” because his party is unlikely to make sufficient gains in the Assemblée Nationale to control the government.

Here are the top things you need to know about the French election:

The French electoral system

The French Presidential elections are held in two stages with the first round taking place on 23 April 2017 and with the top two candidates facing off in the second round on 7 May. The Législatives to determine the composition of the Assemblée Nationale will be held on 11 and 18 June. Although most investors are focusing on who will win the presidency, our analysts believe investors should watch the French Legislative elections in June 2017 just as if not more closely. In a normal situation (when the President and the majority in the Assemblée Nationale are from the same party) the President will appoint the Prime Minister, who then forms a government. However, the Assemblée Nationale is able to overthrow the government through a confidence vote. As a result, the Prime Minister and cabinet need to come from a party that has won the Legislative elections and the composition of the Assemblée Nationale will be key.

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If the President fails to secure a majority in the Assemblée Nationale, the country will fall into a period of “cohabitation”. In a period of “cohabitation”, the President’s powers are significantly reduced, as the government (PM and ministers) can easily be overturned and the President’s powers end up being mainly concentrated on foreign affairs and defense. The severity of the political gridlock will depend on the composition of parliament – whether another party holds a majority and how many MPs in the President’s party are elected.

The polls

The polls and odds from betting firms are changing on a daily basis but Emmanuel Macronisthe current favourite to win. However, recent global elections and referenda have proven to be full of surprises with favourites often falling short. With weeks to go before the first round of the election and with roughly 40 per cent of potential voters changing their minds going into the elections, anything could happen-including a Marine Le Pen victory. Interestingly, Ms Le Pen supporters are the most convinced of their choice with only about 20 per cent of her supporters saying they could still change their minds. This has two implications: 1) support for Ms Le Pen is unlikely to fall meaningfully barring some sort of scandal and 2) support for other candidates is likely to fluctuate during the campaign. It also means that we might see “the shy Front National supporter” vote creep up on us.

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Impact of a surprise Le Pen victory

A Marine Le Pen victory, while unlikely cannot be fully ruled out yet. Polls suggest that, while she is likely to win the first round, she is unlikely to gain a majority in the second round and be elected President. However, if Ms Le Pen is elected President, we may see a lot of uncertainty in the market as France is likely to face a period of “cohabitation”. This situation will make it hard for Ms Le Pen to call a referendum on France’s membership in the EU and the matter may end up being decided by the courts. Our analysts believe that ultimately the court could rule in favour of a referendum because of precedents and strong popular support for a referendum.

For further insights on the upcoming French election download the full report here, find out how to trade the French election, tune in to our podcast on the French election or read our latest piece on the European elections on here.

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