Double defense budget to 3% GDP. Increace Police staff (+5,000) Quotas on immigration 65. Support international Trade Deals

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1 Overview French Election Current State of Affairs First Round of the French presidential Election is set to be held this Sunday (April 23 rd ), 11 candidates have joined this year presidential race, and considering no one is likely to secure an outright majority on the first round, a run-off between the two leading candidates is expected on May 7 th. With the political debates and scandals in the mix, hopes of each candidate have been reshuffling as per the several polls published by local outlets. Yet four front-runners have been standing out on the latest polls: 2 from the more traditional parties, 2 from the far sides of the political spectrum. Interestingly Benoit Hamon, winner of the Socialist Primary (the party of the outgoing president Francois Hollande) lags the polls at the 5 th position with more or less 10% of the stated vote intentions. Candidates Profiles Marine Le-Pen François Fillon Emmanuel Macron Political Stance Summary Political Party Budget Europe Immigration Labour Reform Trade Security and defence Far Right Front National Right Wing Statist EuroSceptic Against Maintain 35hr week Protectionist Quit Nato Against Austerity Lower retirement age Double defense budget to 3% GDP Cooperation with Russia against ISIS Exit Schengen Space Increace Police staff (+15,000) Smaller State Pro Europe (weak) Reduce Scrap 35-hour week More Free Trade Raise spending on defense 2% GDP Reduce number of Civil Servants by 500,000 Pro business labour reform rapprochemnt with Russia Reduction of Corporate Tax Financed by Increase in VAT The Republicans Increase Retirment Age to Increace Police staff (+5,000) Quotas on immigration 65 Removing the wealth tax (ISF) Maintain 35hr week Small State Pro Europe Increase Protective Europe Pro NATO (more cooperation US) Independent Center withflexibility on overtime Simply of Labour Code Moderate spending cuts of 60bn over five years. En Marche (On the Move) Maintain retirement age but bring flexibility Support international Trade Deals Increase defense budget to 2% GDP defeat ISIS top foreign policy goal Increace Police staff (+10,000) 50bn public investment plan to cover job-training, exit from coal and shift to renewable energy, infrastructure and modernisation. lower taxes and an extension of the welfare state. Far left Jean-Luc Mélenchon La France Insoumise (France unbowed) Statist EuroSceptic Control 32hr week Equitable Quit Nato Exit Schengen Space protectionism Increace Police staff Against Austerity Referendum to Exit Europe & EUR Lower retirement age to 60 Other Key Policies Return French sovereignity on legal, monetary, border. Cut immigration by 80 per cent to 10,000 people a year. Extra tax on employers hiring foreigners and making it harder to acquire French citizenship. Cut taxes for households and increase welfare benefits for the working class. Voting from age of 16 and a "Sixth Republic" to replace the existing presidential system. Increase Minimum Salary by 16%. Increase spending by more than 250bn a year and raise public sector wages, financed through higher taxes and taking on more debt. Benoît Hamon Left Wing Socialist Party Statist Pro Europe Pro-imigration 32hr week Protectionism at Double defense budget to 3% GDP Europe Level Increace Police staff (+5,000) Maintain retirement age Roll out a monthly basic income of 750 a month to all citizens and bolster public services, hiring more teachers and medical staff. Tax the wealth on robots that take the jobs of humans. To scrap a 2016 law making it easier to hire and fire workers. To legalise cannabis.

2 The Polls Evolution of voting polls results for the 5 front-runners in the 2017 French Presidential Election 30% 25% 20% 15% 10% 5% 0% Melenchon Hamon Macron Fillon Le Pen Sources: Based on option polls realised before April 19 th 2017 by OpinionWay, BVA Ifofp-Fiducial, Kantar Sofres, Odoxa, Harris interactive, Scan research, Etable, Ipsoso Sopra and Dedicated Research. As we stand, Marine Le Pen seems to have secured her spot on the second round. However, polls keep suggesting that she would then be defeated on the run-off by any of the possible opponents. That said, over the last 12 months, the French campaign s many political twists, and still having in mind the recent unexpected results in UK and US on Brexit and Trump, definitely there is an increased skepticism on the reliability of polls.

3 Political Risk & Market Uncertainties Uncertainties around the elections results, coupled with the perceived high stakes have built nervousness in the market. France 5 Years CDS Level French Gov Bond Spread vs. German Bund on 10 Years CAC 40 Option trading increased 30.0% 27.5% 25.0% 22.5% 20.0% 17.5% 15.0% 12.5% 10.0% European Equity volatility vs. US Equity Volatility S&P500 Volatility (VIX) Eurostoxx Volatility (VStoxx)

4 France CAC 40 Stock Index - lagging European peers - below DAX and FTSE Increased EUR hedging activities (1m Risk Reversal EURUSD) Sources: Bloomberg as of 23/04/2017 Clearly the possibility that Le Pen may emerge victorious represents yet another low-probability and high-impact event, it certainly makes the potential repercussions from this vote go far beyond the borders of France. Le Pen s stated policies could be radical enough to bring down Euro currency, politically destabilize the European Union and largely disrupt the global economy and the markets in the process initiating a new cycle of risk-aversion. On the other hand, should the outcome of the election be positive from the market perspectives, the combination of the removal of key political risk, European economies performing better overall, and higher inflation trend might be the triggers the market has been waiting for to rerate European equities and corporate and reorient their focus back on long-term fundamentals, which actually are quite positive at this point.

5 Scenario Analysis - after the first round 1- Market Best Case Scenario Traditional parties run-off: Fillon vs. Macron The markets preferred scenario would clearly be a run-off between Emmanuel Macron and Francois Fillon. The outcome would be difficult to predict, in this case we would expect an unwinding of EUR hedging activities and an immediate relief of the market nervousness, possibly triggering a rally in the equity space and a tightening of the spread between the years French Sovereign Bond over the German Bund. 2- Likely Scenario Pollster s Choice: Le Pen vs. Macron Despite Macron being new and somewhat untested in politics, the polls have consistently suggested a comfortable win for France s youngest presidential candidate. This most speculated scenario seems unlikely to trigger any strong market reaction in principle. It would not be surprising to see a EUR appreciation and a relief rally in the stock index CAC 40, however, we would expect most market participants to remain cautious and wait for the 8 th of May to completely unwind their hedges and stop holding their breath. 3- Surprise Scenario Fillon s Comeback - Le Pen vs. Fillon A less popular outcome according to the polls but should the former favourite Francois Fillon regain momentum (despite being investigated over alleged misuse of public funds), the polls predict then a win for Le Pen s contender Fillon but by thin margins. On this scenario we would then expect again a subdued market reaction, similar to our Likely Scenario (above). 4- Gloomy Scenario Duel of extremes - Le Pen vs. Melenchon After Melenchon s good performance in the TV presidential debate he filled a good gap in the polls, an unforeseen possibility has then emerged involving both antiglobalization, anti- Euro and anti-union candidates. Being said as the one where the extreme left would go against the extreme right. Le Pen s chances of becoming president increases in this scenario, but more importantly uncertainty could possibly reach its peak. Analysts anticipating this prospect are predicting strong market reactions, with the EURUSD likely to test the parity levels and some saying the CAC40 could open the following Monday between 8% to 10% lower.