French stock market records worst performance since eurozone crisis

Unlock Editor’s Digest for free

FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.

Investor concerns about tariffs and political turmoil, combined with weak demand for luxury goods, are expected to result in French stocks’ worst annual performance since the depths of the euro zone crisis.

Paris’ Cac 40 index has fallen 3% this year, and the region-wide Stoxx Europe 600 index has risen 6%, but a strong start to the year for companies such as LVMH has been disrupted.

Investors have been turned away by the political crisis, weak demand from China’s major export markets and a weak domestic economy. The possibility of a trade war is fueling fears after President-elect Donald Trump threatened to impose tariffs on a wide range of products.

“There’s so much going on at the same time that people want to avoid the French name,” said Roland Kaloyan, head of European equity strategy at French bank Société Générale. “This economic downturn is extremely pronounced.”

Analysts say political turmoil is weighing on French markets as François Bayrou becomes the country’s fourth prime minister this year.

The crisis has intensified debate over how the country should deal with its growing budget deficit. Investor concerns about the country’s fiscal situation have already pushed the country’s 10-year borrowing costs above 3% this year, and the extra margin France pays on benchmark German bonds is the highest since the euro zone debt crisis. has reached.

Earlier this month, Moody’s downgraded France’s credit rating, citing a “significant deterioration” in the economic outlook following a vote of no confidence in the government of outgoing Prime Minister Michel Barnier.

The decline in French stocks is in sharp contrast to neighboring Germany, where the country’s stock market has risen 18.7% this year, despite the gloom hanging over the country’s economy.

Luxury goods companies, the cornerstone of the Cac40, are struggling as China’s economic recovery from the pandemic appears to be stalling.

The rise of middle-class Chinese shoppers this century has transformed profits for luxury goods companies as consumers flock to European and Asian capitals alike to buy designer handbags and other goods.

Then there was a surge in purchases due to the coronavirus, as bored shoppers stuck at home spent their furlough payments on accessories and premium alcohol. Companies such as LVMH and beauty giant L’Oréal saw profits rise by double digits.

But Chinese shoppers are holding back on spending, fearing a sharp economic slowdown. The Chinese government has announced a sweeping plan to stimulate confidence in the economy and markets.

“The huge disappointment in China has probably reached a trough,” said Caroline Reil, head of luxury brands at Pictet Asset Management. “There is,” he added. deterioration of the situation.”

Still, more than a fifth of the Cac 40’s constituents are consumer goods companies with “heavy” exposure to China, such as LVMH and Kering, which are down 12% and 40%, respectively, this year.

Emmanuel Cau, an analyst at Barclays, said the market was “divided” on whether luxury goods companies would recover in 2025 or whether profits would slump again. He expects the sector to grow by just 3% at constant exchange rates next year. “This year has been a year of pain,” he added.

This combination puts the Cac 40 on track to be the only major stock market in the world to end the year in negative territory.

French banks and insurance companies, which make up 10% of the benchmark, have fallen sharply as they are exposed to slower economic growth and also carry large government debts that investors consider riskier.

BNP Paribas, Europe’s largest bank and often traded by investors as a proxy for the French economy, has fallen 8% this year.

Fierce competition from Chinese electric car makers and political turmoil are hitting automakers like Stellantis hard. Shares in the company, which owns the Peugeot, Fiat and Jeep brands, have fallen 41% in Paris this year.

As Cac 40 struggles, French companies are beginning to explore other capital markets. Pay-TV operator Canal Plus went public in London this month, but its shares have fallen nearly 30% since trading began.

Total Energies said it was “seriously considering” listing in the U.S., while fast-growing asset management firm Tikehau told Financial News last month it was considering moving its listing from Paris to the U.S.・Told the Times.

But France’s predicament also reflects the challenges currently facing politicians on the continent. Those challenges include boosting growth and the looming prospect of a global trade war due to steep tariffs following Trump’s election victory.

Barclays’ Mr. Caw added: “Europe needs some sort of catalyst to help it get back on its feet.” We used to rely on China, but now the world’s globalization is slowing down and China’s growth is also slowing down. ”

Additional reporting by Ian Smith