Pioneer Investments Is Not Afraid Of Buying French Debt After Socialist Victory

Max Skjönsberg

9 May 2012

The newly elected socialist government in France is likely to be more economically responsible in office than implied during the election campaign, says Pioneer Investments which has increased its exposure to French debt on that basis.

The Italian asset management firm highlights that the deterioration of France's public finances occurred under a centre-right government and that the country lost its status as a core bond market before it was downgraded by the major rating agencies.

At the same time, Cosimo Maraciulo, head of European government bonds and foreign exchange at Pioneer, thinks that the political change in France looks disruptive to European Union relations. In the election campaign, François Hollande, the newly elected president, spoke critically about the sole focus on austerity and he is widely expected to clash with Angela Merkel, the German chancellor.

With local elections in Germany and an Irish referendum on the European fiscal compact still to come, Maraciulo believes that the investment outlook in Europe looks very challenging once again. “Risky assets may be under pressure in this environment, although we still recommend buying them when markets become volatile, as searching for yields is the right thing to do,” he says.

Maraciulo also says that more support for policies that combine austerity and economic growth may be a “silver lining” in France’s change of government.

“The French Socialist Party is not the same as in the early 80s, although some of its basic principles seem backward-looking, as they focus on tax-and-spend economic policies which are unlikely to be well received by major rating agencies and financial markets,” Maraciulo says. “We believe that once in office the new government will be more pragmatic in carrying out the economic policy than during the electoral campaign.”

The Italian asset manager, which is owned by Unicredit, is also exposed to Italian and Spanish sovereign debt as it believes that their respective governments “tend to correctly balance the budget austerity and the economic reforms”.

Maraciulo believes that investment opportunities are likely to eventually return in Greece, where mainstream parties took a hit in the election on Sunday and a government is yet to be formed. However, he says that investors willing to look for them in advance have to tread with caution and treat them as assets in emerging markets some decades ago.