Without China, the French miracle collapsed

Since the bottom of the euro crisis, French stocks have delivered their weakest annual performance this year compared to the continent as a whole. The Paris CAC 40 stock index fell 3 percent since the beginning of the year, while the Stoxx Europe 600, which tracks the price of the 600 largest European shares, gained six percent. In the eyes of investors, several factors at the same time, the domestic political crisis, the sluggishness of the key Chinese demand and the weakening domestic economy have hit the country’s leading companies together. The election of Donald Trump added another shovel to this, and this threatens to renew the trade war again, writes in its summary Financial Times.

There are so many distractions that investors prefer to stay away from large French stocks. This year, the country already has its fourth prime minister, while the budget deficit, which is becoming increasingly unmanageable, should somehow be managed. Meanwhile, the yield on 10-year French government bonds has already risen above 3 percent, and the yield spread compared to German bonds with a similar maturity has jumped to a level not seen since the European debt crisis.

Earlier this month, Moody’s downgraded France’s credit rating, citing a significantly weaker economic outlook, immediately following a motion of no confidence against Prime Minister Michel Barnier.

French stocks are suffering in such a way that, meanwhile, the German DAX index was able to strengthen by 18.7 percent despite the weakness of the German economy. The reason is basically to be found in the composition of the stocks that make up the two indexes. In recent years, the French market has been significantly pulled by the papers of companies producing luxury goods. They were given a significant driving force by the demand generated by the increasingly affluent Chinese middle class, but it was precisely these buyers who were hit hardest by the crisis unfolding in the Chinese real estate market, which is now being felt throughout the country’s economy.

All this after the post-Covid re-opening, this layer spent amazingly on luxury goods, causing a sudden double-digit increase in the profits of companies such as LVMH, which is interested in luxury goods, and l’Oréal, a major player in the beauty industry. From there, the impact of the lack of Chinese customers was even sharper.

-Confidence in the Chinese market may have slowly reached its peak. Now we can hope that the economic stimulus measures announced by the Chinese leadership will begin to have a positive effect, Caroline Reyl, an expert at Pictet Asset Management, told the newspaper.

More than a fifth of the companies included in the Cac 40 basket are consumer goods companies with high exposure to China. Good examples of these are LVMH and Keringet, whose shares fell by 12 and 40 percent respectively this year. It is a big question whether there will be an upswing next year, Barclay’s analysts do not believe in this anyway, they expect a barely 3 percent increase in the revenues of companies manufacturing for the Chinese market next year.

By the way, with the weak performance of the CAC 40, it will be the only leading stock index that can end the year in negative territory. It is not only China that is in trouble here, the fall of French government bonds affected the financial sector, which has a 10 percent weight, and this also dragged the index down. The shares of BNP Paribas, Europe’s largest bank – which is often sold by speculators as a substitute for the French economy – fell 8 percent this year.

Meanwhile, the competition from Chinese electric cars drove Stellantis into the ground. The shares of the company, which includes the Peugeot and Fiat brands in its portfolio, have fallen by 40 percent since the beginning of the year.

According to the experts interviewed by the newspaper, the French market will have to face even more serious problems next year. If the incoming US President Donald Trump really wants to impose more serious tariffs on European exports to America, French companies will not be able to escape the negative effects.