France saw notable declines in June but has held steady since despite a fluctuating political environment.
International Equity Video Update - (3:09)
The tale of the tape between emerging and developed market international equities has shown increased dispersion over the past few weeks. Some focused emerging markets have climbed notably higher, including India (INDA), Taiwan (EWT), and South Korea (EWY). Each of these representatives have gained at least 5% over the last month, helping the broader emerging markets representative EEM climb to another double top formation last week.
Meanwhile, developed markets have not been so lucky, with weakness from France leading the charge lower. France held the second round of their National Assembly elections last weekend, which led to some surprising results. Before diving into the results and their implications, we will provide some background on the elections.
The French National Assembly can be viewed similarly to the House of Representatives in the US, and is one of the two parts of the French Parliament, alongside the French Senate. The French National Assembly elections use a two-round system. In the first round, any candidate who receives the votes of more than 12.5% of registered voters advances to the second round. If no candidate meets this threshold, the two candidates with the highest number of votes advance to the second round. In the second round, the candidate with the most votes is elected.
This all started earlier in June, after French President Emmanuel Macron dissolved parliament and called a surprise snap election after the far-right National Rally party gained more than double the votes of his centrist Renaissance party in the European Union parliamentary elections. That result and the subsequent snap-election announcement led to major selloffs across French equities. French investors, just like their domestic counterparts, do not respond well to uncertainty. The iShares MSCI France ETF EWQ fell from an all-time high of $42.50 down to support at $37.50, moving to a sell signal in the process. This support level from January is also near the consolidation point that EWQ experienced from May through August of 2023. We saw this same territory act as notable support as EWQ consolidated from all-time highs back in 2021. This would not add any significance to the support from a point and figure perspective, but the previous importance of this price point does raise its broader technical notoriety.
Leading up to the first round of the snap election on Sunday, June 30, EWQ held support and rebounded from an oversold position to the current chart level of $39. After the first round of the National Assembly election was completed last Sunday (6/30), the far-right National Rally party seemed poised to take over as the leading party for the first time in the country’s post-World War II electoral history. That did not have any technical impact on EWQ, as the default chart remained unchanged. In the second round of elections that took place on Sunday (7/7), the National Rally party ultimately fell into the third largest contingent, surprisingly falling behind left-wing and centrist parties. Again, we saw no change to the default chart of EWQ, it still sits at the $39 chart level reached on June 24.
The increased uncertainty across France led to a deterioration in the technical picture for EWQ, as the fund score dropped from an optimal level north of 4.00 to the current position at 2.86. However, we did not see the technical picture change during the “peak” uncertainty in France stemming from their snap-elections over the past two weeks. The political uncertainty in France did not produce as much relative strength deterioration as we saw from recent elections in other countries, like Mexico. We will undoubtedly see further headlines from France in the coming weeks, especially with the Summer Olympics kicking off in Paris at the end of this month. If the support at $37.50 continues to hold, France could be an interesting area to look toward for a potential rebound in the second half of the year. On the other hand, if that support level is violated, we could be looking at a potential test of the positive trend line that has been in place since November 2022.
