LIVE MARKETS-Market winners and losers in France's political uncertainty

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MARKET WINNERS AND LOSERS IN FRANCE'S POLITICAL UNCERTAINTY

France's political crisis has reached new heights, with Prime Minister Sébastien Lecornu - re-appointed last week after his first stint lasted just 27 days - highlighting the deep governmental instability the nation faces.

The country is staring at a critical fiscal situation with the deficit forecast to hit 5.4% this year - well above the EU's 3% ceiling. The political deadlock has made passing a budget to address these issues nearly impossible, resulting in investors punishing French bonds.

Panmure Liberum breaks down the impact on the stock market if the France-Germany 10-year yield spreads widen.

If the spread widens by 10 bps in a month, the French blue-chip CAC 40 index .FCHI shows negative return but recovers to +0.5% in the six month period, analysts said.

For the broader STOXX 600 .STOXX, the impact is about -0.5% in the subsequent month, and persists over six-months, reflecting the larger exposure to smaller, domestically driven stocks.

French luxury brands and export-focused companies show resilience in the six month period. This may reflect the effect of deteriorating credit conditions weakening the euro, which in turn supports these export-driven stocks.

Defensive sectors including utilities, food, and beverage companies also show stability over the 6-month period, the analysts said.

Retailers and travel & leisure stocks, which are more reliant on regional demand, experience some of the largest negative effects over 1-month and 6-month periods, according to Panmure Liberum.

Sectors with high leverage and direct exposure to changing credit conditions including banking, financial services, insurance and real estate see negative impacts, with effects worsening over six months, Panmure Liberum analysts added.

While a full European debt crisis remains unlikely thanks to established stability mechanisms, investors should focus on companies with diversified revenue streams until political clarity emerges, they noted.

(Ragini Mathur)

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