Composition of Lecornu government announced Sunday evening increases political risk in France: underweight French equities

Last night's announcements on the composition of the main ministries in Lecornu's government make it highly likely his government will quickly be ousted, leaving Emmanuel Macron with little choice but to dissolve the Assembly. We recommend underweighting French equities. Although French stocks have only slightly outperformed the Stoxx 600 since Mr Lecornu's appointment (1% in performance, 0.7% in valuation for the CAC 40 vs Stoxx 600), and have continued to underperform since the dissolution, this does not protect them from the political and economic consequences of a potential new dissolution.