The Emmanuel Macron method explained for investors

By now, investors have already digested the main themes of the new French president’s economic agenda.

The hope is high that a return to a kind of third way à la Blair-Schroeder will bring wealth-creating reforms. However, there is also another reason for investors’ predisoposition towards Emmanual Macron. Parallels present themselves, as investors are seeing familiar patterns in Macron’s approach to the political world.

Macron’s journey began with a value analysis which, having been proven successful, has gained strong momentum. The value analysis focused on economic plans and policies neglected by fading traditional parties, revealing room for an alternative approach. The momentum can be seen by the number of new converts who have rallied around. Macron hopes to use this to win an outright majority in the National Assembly. He will also need this momentum if he is to quickly implement his reforms and gain public approval.

The Macron method also strikes a balance so dear to investors, between tactical talent and strategic vision. His electoral success mobilised a proven capacity for opportunism, taking advantage of circumstances when they offered the possibility of quick gains. It also benefited from a statement of intent on long-term structural reforms.

In addition, Macron’s project reveals a search for “risk asymmetry” and “convexity”, both themes familiar to investors. Prioritising education as well as well vocational training, is essentially a means of strengthening fundamentals while giving individuals the resources needed to harbour real ambitions. It is optionality at work.

On the technical side, Macron’s grasp of complexity speaks just as loudly to investors, who deal constantly with highly efficient financial markets where ideas that appear simple or obvious are suspect, as they are sure to have already been acted upon and reflected in prices. Active management only produces long-term performance if investors appreciate the nuance of the task at hand, and recognise its difficulty. Macron’s stance in running for president took a similar path, as he explicitly rejected the idea of a magic wand (“demagogic” solutions, in political parlance).

Lastly, investors will see a quality close to their heart in Macron’s presidential adventure: personal risk-taking. In terms of savings management, investment – whether direct or through a professional manager – requires commitment. These professional managers are only credible if they suffer the consequences of their actions personally. Experience shows that it is wise to ignore investment advice generously dished out by third parties who do not have themselves skin in the game would not risk following it themselves. By giving up his career in banking, leaving the government, and trying to do something unprecedented in French political history, Emmanuel Macron has certainly shown great ambition, as well as a clear acceptance of the personal risks involved.

We could also mention flexibility – decisive for investors committed to active management, and the cornerstone of the proposed reform to employment laws – along with the balance between intuition and analysis, the golden rule of asset management for two important factors in Macron’s success.

All of these parallels allow investors to apply a familiar analysis to the first visible elements of Macron’s philosophy. Of course there are limits, if only because it is the nature of democracy that any freshly acquired authority soon loses its power in the absence of sufficiently broad political support. This concept is alien to investors. Not only do they have no need for majority support before making a decision, but they must actually be capable of going completely against the consensus view. It is safe to assume that they will not underestimate this challenge, one highly specific to politics, and one to which their new president will have to rise.

Didier Saint-Georges – Managing Director – Carmignac