The French Elections: “Sarkozy” Spells “Opportunity” In France

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

French voters gave this son of a Hungarian immigrant a sizable mandate to pursue market reforms. Sarkozy achieved a comfortable victory of more than six percentage points on an extraordinary turnout of 85%. The scale of Sarkozy’s victory will embolden him to push ahead with economic reforms this summer. Opponents of Sarkozy derided him as an "American conservative with a French passport." Libération, the left-leaning newspaper, described him as "Thatcher without the skirts." For investors, the election of Sarkozy means a reformer who not only will trim some of the country’s generous welfare benefits, but also will help to generate bigger profits for corporate France in the years ahead.

And this week’s Global Bull Market Alert pick, the iShares MSCI France Index (EWQ), seeks to profit from the new Sarkozy Revolution.

Under Sarkozy, France is poised for five years of ambitious economic and social reforms under one of its most energetic politicians. And there are fewer safer long-term investment themes than a government ready to institute market-oriented economic reforms. Investors in Austria, and more recently Sweden, have benefited tremendously from similar reforms coupled with reductions in corporate taxes. You can expect both in France over the next six months.

The French ETF is also well-balanced across a range of sectors that are set to benefit from Sarkozy’s reforms. The ETF’s top holdings include oil giant Total, pharmaceutical Sanofi Aventis, banking leader Societe-General, and global insurance play Axa. Other holdings include Suez (water), France Telecom, Vivendi (water), Carrefour (retail), and Arcelor Mittal (steel). This diversification across a wide range of sectors and holdings should make for a steady, upward ride.

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Finally, the French market also has the strength of an appreciating Euro at its back. With the dollar getting clobbered and European markets already galloping ahead, an appreciating Euro will boost dollar returns to U.S. investors by an additional third.

So buy the iShares MSCI France Index (EWQ) today at market and place your initial stop at $35.80. There are no options on this one.

PORTFOLIO UPDATE

Our Global Bull Market Alert portfolio had a strong week. We took profits of 76.09% in our Vimpelcom options and 56.86% in our CVRD options as the Brazil-based mining giant announced record earnings. With Vimpelcom’s (VIP) stock up 7.17% and CVRD’s (RIO) stock rising 9.45%, adjust your stop to $86.80 in Vimpelcom and to $37.75 in CVRD.

Irish biotech play Icon Plc (ICLR) hit record highs and is now up over 15%. Keep your stop at $41.75.

German insurer Allianz (AZ), Europe’s largest insurer, reported a 78% rise in first-quarter net profit last week. Its net profit rose to €3.2 billion ($4.36 billion) from €1.8 billion a year earlier. With the stock now up over 8%, move your stop to $20.90.

Korean steelmaker Posco (PKX) is also up 7.18%. Tighten your stop to $93.75.

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