How to position as France is entering a new political cycle?

Goldman Sachs advises investors to remain cautious on French equities and assets despite discounted valuations, citing persistent political and fiscal uncertainty heading toward the 2027 presidential election. Marine Le Pen leads first-round polling above 30%, with Goldman Sachs assigning her a 68% probability of victory. Market participants are increasingly concerned over France's fiscal credibility as public debt approaches 120% of GDP, the fiscal deficit exceeds 5%, and 10-year government bond yields have reached 4.2%, their highest level since 2008. The benchmark CAC 40 index has underperformed the STOXX 600 across 2024, 2025, and 2026, reflecting a growing sovereign risk premium. While only 15% of CAC 40 revenue is domestically generated, more domestic-focused equities and high-beta banking shares face heightened sensitivity to widening OAT-Bund sovereign spreads and higher corporate surtaxes. Goldman Sachs notes that domestic equities trade at 10 times forward earnings (a 35% discount to European peers), but warns valuation multiples could compress further before stabilizing.