French and eurozone banks surge as risk recedes

France’s big banks were the biggest beneficiaries of the country’s first round of voting in the race for the Elysée Palace on Monday with their share prices eclipsing a robust performance from the blue-chip CAC 40 index.

Shares in BNP Paribas gained 7.4 per cent while Société Générale rose 10.1 per cent and Crédit Agricole added 10.3 per cent — surpassing the CAC 40’s jump of 4.1 per cent.

The rebound in French banks was replicated across the eurozone as investors expected Emmanuel Macron, the market-friendly candidate, would follow up his first-round victory next month and become the country’s next president.

The Euro Stoxx Banks index — a gauge of the continent’s financial stocks — rose 7.2 per cent and touched its highest level since December 2015.

Italian banks, led by UniCredit, were strong performers alongside France’s lenders while Germany’s Commerzbank and Deutsche Bank also rose sharply.

“I think they’re [financials] the most immediate beneficiary,” said Pierre Bose, head of European strategy at Credit Suisse wealth management, though he also pointed to the European periphery as a big winner in the longer term.

Ahead of the election, investors had contrasted a sense of political risk — especially from strong support for Marine Le Pen and Jean-Luc Mélenchon — with improving economic data across Europe.

Investments in banks are seen as closely correlated with broader economic performance.

Didier Saint-Georges, a managing director at Carmignac, said in a note that the “geographic rotation of equity allocations that was under way from the US to Europe and emerging markets will be allowed to resume, based on different stages of the economic cycle”.

Investors suggested that the market had been overly negative in the build up to the first round of voting on Sunday.

Late last week, the premium of French yields over German Bunds sovereign risk eased while the euro strengthened, with such positioning implying a higher degree of optimism for Macron reinforcing his frontrunner status.

“We decided last week to short the Bund and to go long France, long Italy, Spain,” said Franck Dixmier, global head of fixed income at Allianz. “Looking at the asymmetry in prices, it seemed it was overestimated.”

“The price action today is very, very significant,” Mr Dixmier added.

Prices for outstanding bonds sold by leading financials also appreciated in value, bolstering an already strong performance for this year, despite some trepidation over the French election.

A €750m subordinated BNP Paribas bond was trading at 108 cents on the euro, up from 105 cents last week.

An index reflecting the riskiest form of bank debt has generated returns of 16 per cent over the past 12 months.