Goldman Sachs Urges Caution on French Assets Amid Rising Political and Fiscal Risks

Goldman Sachs is advising investors to maintain a cautious stance on French assets, citing significant long-term political and fiscal uncertainty as the country enters a new political cycle ahead of the 2027 presidential election. In a recent note, the investment bank warned that despite deepening valuation discounts, the potential risks may outweigh the opportunities for now.

Political Landscape Shifts

The primary driver of the uncertainty is the shifting political environment. According to Goldman Sachs, polling data for the presidential election shows key trends:

• National Rally leader Marine Le Pen is leading first-round surveys with over 30% of the vote.
• Centrist candidate Édouard Philippe and far-left candidate Jean-Luc Mélenchon are each polling between 15% and 20%.

The bank's economists estimate a 68% probability of a Le Pen victory. This forecast is significantly more confident than prediction markets, which currently assign her a win probability of approximately 30%.

Fiscal Credibility in Focus

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Beyond the election's specific outcome, Goldman Sachs highlighted that the market's deeper concern is France's overall fiscal credibility. The country is facing substantial economic challenges, with public debt approaching 120% of its gross domestic product and a fiscal deficit that remains above 5%.

A fragmented parliament could further complicate the outlook, making it difficult for the next administration to implement the necessary fiscal reforms. This structural political issue raises questions about the government's ability to manage its debt and deficit levels effectively in the coming years, regardless of who wins the presidency.

Implications for Investors

Given this backdrop, Goldman Sachs suggests that the increasing valuation discount on French assets is not yet enough to compensate for the heightened political and fiscal risks. The bank's analysis implies that investors should wait for greater clarity on the political and economic trajectory before taking on more significant exposure to the French market.