If you think British politics has been eventful, it’s nothing compared to France. After the calling of a snap election a month ago, the far right party looked to be heading to an overall victory. Yet last night (7 July) the final round of voting showed large support for left-wing parties. As we stand, it looks like we’re heading for a hung parliament. Given that some UK stocks are exposed to what happens in France, here are some I’m watching closely.
How the land lies
Before I get on to specific stocks, it’s important to understand why I’m concerned here. In France (and Europe more broadly) there has been a swing towards the far right on the political spectrum. I’m politically neutral in this regard. However, often the policies include a more protectionist approach looking to foster domestic demand rather than businesses from abroad. This is a negative for UK stocks that trade in France.
Yet the alternative of a hung parliament in France isn’t much better. With no one party having enough votes to hold a majority, it could cause a stalemate in terms of getting any meaningful reforms done.
This could see a lack of any economic progress in coming years. Or it could see further unrest in the country. All of these outcomes are again negative for firms from the UK that trade in Europe. It could make impacted UK shares more volatile.
Some might say I’m being too pessimistic here. It could be that an orderly transition occurs, with new policies that act to boost economic growth and therefore benefit companies that have operations there.
Looking at the potential risk
Most of the FTSE 100 constituents trade not just in the UK. Many trade in a host of countries abroad. For example, consider Unilever (LSE:ULVR). The consumer goods giant trades globally, but makes a good chunk of money from France.
In the 2023 results, total revenue was around €60bn, but only €2.5bn of this came from the UK. When I strip out the UK, US and India, there was €38bn worth of revenue that came from places including Europe. Although it doesn’t detail specifically how much came from France, it’s one of the largest markets within the region.
Further, Unilever has manufacturing facilities in the country for various product lines.
The stock’s up 6% over the past year, but down 1% over the past month. The short-term movements could be partially linked to the uncertainty in France right now.
I’m slightly concerned that business could be hampered depending on how the political landscape shifts going forward. It’s true that revenue from other regions could help to offset any weakness from France. However, there are other companies in this sector that are much less exposed to the country which likely make more sense for me to consider buying.
Cautious right now
Ultimately, investors don’t like uncertainty. In France right now, we have a lot of it! Therefore, I’m going to be staying away from UK stocks that are impacted for the time being.
This post was originally published on Motley Fool
