February 24, 2017 / 2:20 PM / 6 months ago

French equities "a bit too relaxed" ahead of election, UBS warns

LONDON, Feb 24 (Reuters) - French equities, which have held up relatively well in the face of uncertainty around elections, risk catching up to the jitters in government bond markets, analysts UBS wrote in a note to clients on Friday.

While French bond spreads over safe-haven German bunds rose to multi-year highs earlier this month on the market's concerns over a potential win by far-right leader Marine Le Pen, stocks have shown few signs of strain.

French shares, helped by banking and energy sectors have rallied along with other regional and global markets in the cyclical rally that kicked off last summer and accelerated following Donald Trump's election as U.S. President.

However, equity investors may be turning a blind eye to the rising spread between French and German bonds, UBS said.

On a price-to-book valuation, French stocks usually trade at a 10 percent discount to Europe on average. That has widened to 15 percent ahead of the elections, but remains modest compared to the European periphery which trades at discounts closer to 40 percent. (Reporting by Helen Reid, Editing by Vikram Subhedar)

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