As political uncertainty drives their prices down… Look to Europe for some star players

France should be in a state of great excitement for the start of the Olympic Games in Paris later this month. Instead, the country is in turmoil after a deadlocked election.

There are fears of a market defeat if the far left, which won the most votes in last weekend’s elections, forms a government and announces major spending plans, as government finances are already under severe pressure.

Moreover, a parliament without a clear agenda and without divided votes would be detrimental to investor confidence.

The outcomes would also rattle the rest of the eurozone, thanks to the bloc’s currency and fiscal ties.

Jamie Ross, co-director of the Henderson European Trust, notes: ‘Political uncertainty in France is political uncertainty at the heart of the EU.’

What does this mean for the European pharmaceutical, software and other companies seen as closest to America’s ‘Magnificent Seven’ technology stocks?

Earlier this year, US banks touted the benefits of these companies.

Citi named its ‘Super Seven’: ASML, Ferrari, LVMH, Novo Nordisk, Richemont, Schneider Electric and SAP.

Goldman Sachs advised “the Granolas” – GlaxoSmithKline (GSK), Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oreal, LVMH, AstraZeneca, SAP and Sanofi.

Actually, it says ‘Grannnolass’ and it contains two British names: GSK and AstraZeneca.

However, Goldman describes them as “internationally exposed, high-quality growth compounds,” suggesting they have the “je ne sais quoi” to weather turmoil.

Want to take a European gamble this Olympic summer? Here’s what you need to know.

THE PROSPECTS

Further volatility is a threat as Germans head to the polls in October. Ross notes: ‘The German public is increasingly influenced by the far right, which could win a vote share in the mid-teens.

‘A strong EU needs a stable political situation in France and Germany – and at the moment that is certainly a question.’

However, he argues that European markets are now dominated by ‘companies that are sensitive to global structural trends rather than domestic European politics’.

Ross continues: ‘These markets are now more exposed to semiconductors in the form of the Dutch group ASML, which produces the machines to make chips, and more international pharmaceutical companies, such as Novo Nordisk and the Ozempic group of slimming drugs.’

Henderson European Trust offers exposure to ASML, Novo Nordisk, German software group SAP and French industrial automation company Schneider.

The trust’s shares are trading at an 8 per cent discount to net asset value (NAV), suggesting it could be a bargain to track Europe’s stars. Other best-buy funds include Fidelity European. But if you’re keen to back individual stocks, here are some that fund managers are eyeing.

STOCKS TO WATCH

BEAUTY

Beauty giant L’Oréal’s €214bn (£180bn) brands range from high-end brands Aesop and Lancome to budget-friendly Maybelline and Cerave, which is a hit with Gen Z. L’Oréal CEO Nicolas Hieronimus expects the global market for these and other brands to grow by 4.5-5 per cent this year, rather than the 5 per cent previously forecast.

But that would not be due to the unrest in the French summer, but to a delay in China.

Shares have fallen 8.4 percent this year to €412.60. But analysts are optimistic: the average price target is €450, but one optimist says they can reach €526.

ENTERTAINMENT

Bollore Group, a French family-owned conglomerate worth €15.5bn (£13bn), has been described as “one of Europe’s last byzantine corporate structures” by Joe Bauernfreund, manager of the AVI Global trust.

Among the various shareholders are Universal Music and Vivendi, which owns the Canal+ TV channel and the Havas advertising agency. Bauernfreund will increase the trust’s stake in Bollore, arguing that “political instability has presented an opportunity.”

LUXURY

LVMH, the French giant behind brands such as Tiffany and Louis Vuitton, will be in the spotlight as the main sponsor of the Olympic Games.

But shares have fallen 16 percent in a year as demand for bags and trinkets falls.

This could be a good time to take a closer look at L’Oréal, argues Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity fund.

He argues that this is not a domestic company but a truly global player.

Smit argues the same for Essilor Luxottica, which is the world leader in the eyewear and sunglasses sector thanks to its brands Oliver Peoples, Persol and Ray-Ban.

TECHNOLOGY

ASML shares have risen more than 50 percent in the past 12 months to €1,002, on the back of excitement about generative AI (artificial intelligence).

However, analysts continue to rate the company as a buy, with some analysts expecting a price of €1,302.

Smit says the €386bn (£324bn) group will benefit from the relocation of semiconductor capacity to the West, and specifically to the US.