UK stocks could be at risk from French election fallout

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UK stocks could be at risk from French election fallout

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If you think British politics has been eventful, it’s nothing compared to France. After a snap election was called a month ago, the far-right party seemed to be heading for an overall victory. However, last night (7 July) the final round of voting showed a sturdy support for left-wing parties. As it stands, it looks like we’re heading for a hung parliament. Given that some British stocks are exposed to what’s happening in France, here are a few I’m keeping a close eye on.

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How is the land

Before I get into specific stocks, it’s significant to understand why I’m concerned. There’s been a shift towards the far right on the political spectrum in France (and Europe more broadly). I’m politically neutral on this issue. However, politics often take a more protectionist approach, aimed at supporting domestic demand rather than foreign companies. This is negative for UK stocks that trade in France.

But the alternative to a hung parliament in France isn’t much better. With no party having enough votes to maintain a majority, it could create a stalemate over any meaningful reforms.

This could mean a lack of economic progress in the coming years. Or it could mean further unrest at home. All of these results are again negative for UK companies trading in Europe. This could make affected UK shares more volatile.

Some might say I am too despondent. It may be that there will be an organized transition, with novel policies that will work for economic growth and therefore benefit the companies that operate there.

Looking at the potential risk

Majority FTSE100 ingredients do not only trade in the UK. Many trade in many countries overseas. For example, consider Unilever (LSE:ULVR). The consumer goods giant trades globally, but makes a lot of money in France.

In the 2023 results, total revenue was around €60 billion, but only €2.5 billion of that came from the UK. When I cross out the UK, the US and India, I found that revenue from places like Europe was €38 billion. Although there was no detail on how much exactly came from France, it is one of the largest markets in the region.

Additionally, Unilever has manufacturing plants in the country producing various product lines.

The stock is up 6% over the past year but down 1% over the past month. The short-term volatility may be partly linked to the current uncertainty in France.

I am a bit concerned that business could be tough depending on how the political landscape changes in the future. It is true that revenue from other regions could aid offset any weakness in France. However, there are other companies in the sector that have much less exposure to that country, which probably makes more sense for me to consider buying.

Now be careful

Ultimately investors don’t like uncertainty. We have a lot of it in France right now! That’s why I’ll stay away from UK stocks that are affected for now.

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sadasda

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