The French presidential election suddenly has become the most uncertain political event in a long time. That is no small feat, coming after the Brexit vote in the U.K. and Donald Trump's victory in U.S. presidential elections last year. But the turn the race took this week, just 10 short days before the first round of the vote, is more worrying than any others.
Back in February, one former favorite candidate fell off his pedestal -- namely, conservative Francois Fillon, who ended up embroiled in a controversy about having paid his wife for work she did not do, accusations that he denied. Still, the rising star at the time -- former Economy Minister Emmanuel Macron, a centrist -- was someone investors could trust to keep France in the eurozone and the economy on track.
Fast forward two months, and today's rising star is really no more palatable than the extreme right leader Marine LePen, who said she wants to take France out of the eurozone and redenominate the country's sovereign debt -- default in anything but name.
The rising star du jour is Jean-Luc Melenchon, a candidate of the extreme left who is advancing so rapidly in opinion polls that he now threatens to enter the runoff, set to take place on May 7 between LePen and whoever emerges as the second-placed candidate in the April 23 first round.
Melenchon was once in fifth place, but has risen in recent polls to the third spot, on equal footing with Fillon. With many French people undecided and their well-known weakness for leftist views, Melenchon's rise should not be that surprising.
Why is he bad news for investors? Well, he's a leftie, and an extreme one at that. Think Hugo Chavez, but with more charm and an online game of "shake the rich" called Fiscal Kombat. Really, there is such a game, in which Melenchon is the hero who literally shakes the rich, gets their money and shares the proceeds with the people.
On a more serious note, perhaps the most worrying aspect of his campaign is his stance on the euro and the European Union. In a speech on the website of his "La France Insoumise" (Disobedient France, or, as I like to call it, 'Naughty France') movement, he says: "The European Treaties restrict our freedom to act."
And he continues: "Faced with the decay of the European Union and its rising attacks against democracy, faced with its stubborn opposition to the idea of harmonizing salaries in member states by achieving social and fiscal harmonization, and faced with its combative tendencies, we have to regain our independence. We either change Europe, or we must leave it. That's where it will all begin."
I do not like to use the word "Frexit." It's an ugly word, and it's an especially ugly idea, because France is one of the founding members of the European Union and of the eurozone. But Melenchon is the second candidate for the French presidency who threatens to leave the union if the EU doesn't change to be more suitable to his country's needs. The threat is getting serious.
What is the investor to do? It depends. An investor who likes risk and has a lot of discretionary capital would see this as an opportunity to pick up some French stocks, which are suffering because of the uncertainty. But until we have the results of the first round of the election, on April 24, that is a very risky strategy.
A victory by LePen and Melenchon in the first round would be the worst outcome for investors. The runoff would be just a contest between two extremes, with the same end result. As the French proverb says, "les extrêmes se touchent." Not a pretty prospect.
(What will move markets this quarter and how should investors position themselves ahead of time? Jim Cramer sat down with four of TheStreet's top columnists recently to get their views. Click here to listen to his latest Trading Strategies roundtable with them and read their advice for stocks, bonds, forex and gold.)
