French stocks "lost year"? May record the worst performance since the Eurozone crisis!
The French stock market has performed poorly this year, with the CAC 40 index down 2.3%, potentially marking its worst annual performance since the Eurozone crisis. Political turmoil, weak demand for luxury goods, and concerns over tariffs have led to a lack of investor confidence. Moody's has downgraded France's credit rating, and the economic outlook has clearly weakened. In contrast, the German DAX index has risen by 19%. Analysts expect the growth rate of the luxury goods industry to be only 3% next year
The French stock market has performed poorly this year and is likely to record its worst annual performance since the eurozone crisis.
The French CAC 40 index has fallen 2.3% this year, while the European Stoxx 600 index has risen 6% during the same period, and the German Frankfurt DAX index has increased by 18.7% this year. The French stock market started strong at the beginning of the year, mainly benefiting from the excellent sales performance of companies like LVMH, but this momentum has faded.
Multiple factors such as political turmoil, weak demand for luxury goods, and concerns over tariffs have led to a lack of confidence among investors in the French market.
Roland Kaloyan, head of European equity strategy at Société Générale, stated:
"Too much is happening right now, and people want to stay away from French stocks. This decline is quite significant."
Multiple Factors Leading to Lack of Investor Confidence
Analysts believe that political turmoil has heavily impacted the French market. This year, France has changed four prime ministers, with François Bayrou being the latest to take office. The political crisis has intensified concerns about how France will address its growing budget deficit.
Investor unease about France's fiscal situation has pushed its 10-year borrowing costs above 3%. The additional spread of French bonds relative to German benchmark bonds has reached its highest level since the eurozone debt crisis.
Earlier this month, Moody's downgraded France's credit rating, citing a "noticeable weakening" in economic prospects.
Luxury goods companies are a significant component of the CAC 40 index, but their performance has been poor. The stock prices of luxury giants LVMH and Kering have fallen by 12% and 40% respectively this year.
Barclays analyst Emmanuel Cau expects the industry's growth rate to be only 3% next year. He said:
"It's been a painful year."
Meanwhile, the German DAX index has risen by 19% this year, far exceeding other major European indices. Over the past decade, the composition of the DAX index has shifted from being dominated by industrial and pharmaceutical sectors to relying more on financial and technology companies. This change reflects the transformation of the German economic structure. For example, SAP's stock price has risen over 70% this year, benefiting from the AI boom and growth in cloud computing business.
French Companies Seeking Breakthroughs, Exploring Other Capital Markets
French banks and insurance companies account for 10% of the CAC 40 index, and their stock prices have plummeted due to slowing economic growth and holding a large amount of government debt perceived as higher risk by the market. France's largest bank, BNP Paribas, has seen its stock price drop by 8% this year Automakers like Stellantis have also been hit by weak demand and political turmoil. The company's stock price has fallen 41% in Paris this year.
However, the crisis also contains opportunities. Some French companies are beginning to explore other capital markets. Pay-TV operator Canal+ went public in London this month, despite its stock price dropping nearly 30% after the listing. Energy giant TotalEnergies has also stated that it is "seriously exploring" the possibility of a U.S. listing. Barclays' Cau added:
"We need some kind of catalyst to make Europe start paying attention to itself. The world is less globalized now, and growth is slowing."
While investors often buy on dips, Goldman Sachs believes that the CAC 40 is still not attractive at the moment, for two reasons:
- The poor performance of the French stock market is mainly driven by fundamentals, which are still not good;
- Compared to historical levels, the current valuation of the French stock market is still relatively high.
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