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Friday, March 29, 2024

Au Revoir, Nicolas

Courtesy of Doug Short.

Last weekend France went to the polls for the first round in the presidential election. Nicolas Sarkozy, the incumbent representing the center-right UMP (Union pour un mouvement populaire) party, narrowly trailed his Parti socialiste (Socialist Party of France or SP) opponent, Fran?ois Hollande. A second round runoff, between Messrs. Sarkozy and Hollande, is scheduled for Sunday, May 6th. On the same day, Greece also goes to the polls. Greeks will vote in a parliamentary election to replace the current technocratic, care taker government headed by Lucas Papademos. Jittery markets — in Europe and elsewhere — will be reading the results for signs of a repudiation of the fiscal austerity measures adopted throughout much of southern Europe in response to the sovereign debt crisis.

Opinion polls suggest Sarkozy will be denied a second five year term in office. The latest survey, conducted by Harris Interactive, shows Hollande with a commanding ten percent lead over his rival. While Sarkozy may still prevail in the second round, the odds against grow with each passing day. Many commentators contend the election is less a referendum on the Franco-German fiscal concordat (between the German Chancellor Angela Merkel and the French President Nicolas Sarkozy), than a rebuke to the man himself for his perceived gauche style. While this may be so, it is also true that austerity fatigue has set in not just in Greece, Italy and Spain, but in the Netherlands and France as well. One cannot discount this, no matter what polls indicate, as a factor.

 

 

Five weeks after the second presidential election round, France returns once more to the polls to chose the 14th National Assembly of the Fifth Republic. Consensus predictions are the UMP will retain control of the National Assembly, resulting in a divided government (cohabitation to the French). Much though can happen in the next four to six weeks. Events may unfold which cast the anticipated Hollande victory as a signal Europe may change tack and adopt another course to navigate the debt crisis.

The recent announcement by Standard & Poor’s, cutting the sovereign debt rating of Spain (from A to BBB+), is one such event that may influence the upcoming elections. The man on the street in Athens, Rome, Madrid and perhaps in Paris as well probably questions the wisdom of continued sacrifice when the financial markets never seem to be quite satisfied.

For these reasons investors will be trying to gauge voter sentiment to discern whether or not a policy shift is in the offing. Changes in both the occupant of the ?lys?e Palace (the French president’s residence) and the composition of the National Assembly may portend a deterioration in the economic entente that has steered Europe through the debt crisis thus far. The financial markets, as well as Chancellor Merkel, will not have to wait long to see where Hollande’s sympathies lie. Already, Hollande and Merkel are exchanging barbs over whether the recently agreed upon fiscal pact can be renegotiated. Hollande says yes; Merkel, no. Unless these differences can be patched up, another roller coaster ride in the European markets looks likely.

And, for these reasons, the equity market gains of the 1st Quarter have been lost so far into the 2nd. All Eurozone equity markets saw their 1st Quarter gains partially erased or the price slide continued (in the case of Spain) in US Dollar terms. In small part, the Dollar’s 1.1 percent gain (versus the Euro) since the end of the March is to blame. But in Euro terms the tone is decidedly negative. Each of the eleven Eurozone equity markets tracked by MSCI has fallen thus far in the 2nd Quarter.

Over the last week, markets have stabilized — at least for the moment. In a nervous market the slightest misunderstanding of intent can send share prices down. Investors will jump to read into the upcoming election results. While the French populace may wish to say “Au revoir” to Sarkozy, the rest of the world may think it premature to bid him “Adieu”.


Notes:

Returns reflect the results for selected European country and regional equity indices compiled and maintained by MSCI. All returns are expressed in US$ terms and include the reinvestment of dividends after all applicable with holding taxes have been deducted.

All indices cited are free float-adjusted and market capitalization weighted.

(Source: Lipper; MSCI.)


About American Independence Financial Services, LLC

American Independence Financial Services, LLC (“AIFS”) is the investment adviser and administrator for the American Independence Funds and the NestEgg Target Date Funds. The firm is a limited liability company founded in 2004.

Important Disclosures

(c) 2011, American Independence Financial Services (AIFS). All rights reserved. Redistribution and quotation permitted with attribution to the author and source.

The views expressed in this document are based on political, market, economic and other conditions subject to change at any time. Data are acquired from sources believed to be reliable. But no warranties are made to the accuracy, completeness or timeliness of the data and information presented. Opinions expressed are those of the author unless indicated to the contrary. Nothing in this document should be construed or taken as financial or investment advice. Please consult with your financial advisor to discuss how the subject of this research report may impact your unique, individual circumstances.

Certain indices, yields, exchange rates and other market and economic statistics may be quoted or mentioned in this report. You can not invest directly in an index; nor can you obtain many of the other yields or rates quoted. Please bear in mind such indices and other statistics do not include many of the expenses associated with investing in securities including (but not limited to) trading costs, custodial fees and management fees. All index results cited in this document reflect returns including the impact of re-invested dividend or interest payments expressed in US Dollar terms unless noted to the contrary.

Investors should understand and consider these and other risks they may face by investing in the Funds. These risks are discussed more fully in the Funds’ prospectus. Investors are encouraged to read the prospectus.

For more complete information on the American Independence Funds, you can obtain a prospectus containing complete information for the funds by calling 1-866-410-2006, or by visiting www.aifunds.com. Please read the prospectus carefully before investing. You should consider the fund’s investment objectives, risks, charges and expenses carefully before you invest or send money. Information about these and other important subjects is in the Funds’ prospectus.

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