European Stocks Rebound as Dust Settles From Macron Vote Call

(Bloomberg) -- European equities bounced back for a second session as investors took stock of political developments in France ahead of elections and scoured the market for opportunities following a recent selloff, even as gains remained muted.

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The Stoxx Europe 600 Index ended the session 0.7% higher, with all sectors in positive territory, save for consumer-related stocks. France’s CAC 40 Index gained 0.8%.

European stocks have retreated sharply over the past week since French President Emmanuel Macron called a snap legislative ballot following a drubbing by Marine Le Pen’s National Rally in the European Parliament elections. The two-round election will conclude on July 7.

Rising political uncertainty and worries over France’s fiscal woes have seen its benchmark CAC 40 Index shed nearly 5% since the start of last week, with banks tumbling, while yields on French bonds have soared. French stocks have become the least popular in Europe, according to a Bank of America Corp. survey, and the country’s equity market has ceded its spot as Europe’s biggest to London.

For some, the upheaval has thrown up opportunities. Barclays strategists led by Emmanuel Cau said that a drop in shares in sectors including banks, leisure, utilities and construction could be overdone.

“We believe markets could attempt to stabilize into the first round of the elections, with current oversold conditions helping to limit near-term downside absent a new negative,” Cau wrote in a note.

Kiran Ganesh, multi asset strategist at UBS Global Wealth Management, said that the uncertainty in France is something that, longer-term, investors will be able to look through.

“In the equities space, we do like the theme of quality and the companies that have strong balance sheets and a track record of growing earnings over time,” Ganesh said by phone. If they get caught up in the selloff, “then we would see that as attractive,” he said.

Deal-making drove some of Tuesday’s biggest individual stock moves. Sweden’s Resurs Holding AB soared after the consumer finance company received an offer, while XP Power Ltd. dropped after Advanced Energy walked away from an offer for the electrical components maker. Carrefour SA shares fell on news that the grocer faces a €200 million fine from France’s finance ministry over its relationships with franchisees, which the company said it “vigorously contests.”

More broadly, investor angst remains, with worries over a resurgence in far right parties spurring an uptick in equity volatility. Berenberg strategists Jonathan Stubbs and Leoni Externest warned that political disruption in France could be ushering in a “Brave New World,” characterized by a move toward fiscal activism and higher-for-longer inflation.

“We see valuation, fundamental and macro support for French equities remaining broadly in place for the coming 12 months, but we are not in a hurry to chase risk,” they said in a note.

For more on equity markets:

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--With assistance from James Cone, Sagarika Jaisinghani and Michael Msika.

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