(BFM Bourse) – Several stocks, which had been the most penalized by the announcement of the dissolution, are rebounding on the Paris Stock Exchange after the results of the first round of the legislative elections.
The Parisian market rebounded this Monday after the results of the first round of the legislative elections. The CAC 40 rose another 1.5% around 12 p.m. after gaining 2.6% in the first exchanges to 7,671.52 points.
The hypothesis of a National Assembly without an absolute majority is well accepted by the Stock Exchange.
“The reaction of the financial markets in the morning is therefore a mixture of technical elements (such as buybacks of short positions) and a little political relief,” notes Alexandre Baradez, head of market analysis at IG France. Short positions correspond to short selling, in other words when investors bet on the decline of a stock or index. When they unwind their position, they are said to repurchase their positions.
“While it is always difficult to predict political scenarios between the two rounds of elections, a scenario in which no absolute majority emerges leaves more and more chances for a weak and broad coalition of parties to govern the country for a period of at least a year, limiting the scope of legislative activity to current affairs rather than more notable legislative changes,” continues AlphaValue.
Banks on the rebound
This rebound is mainly driven by the sectors that had been shaken after the announcement of the dissolution. Including the banks which occupy the strongest increases of the CAC 40 like Société Générale which gains 4.2%, after a peak at 7.3%, Crédit Agricole progresses by 3.7% while BNP Paribas gains 2.9%.
Banking institutions are at the forefront of market fears. These securities tend to react very often more than the market when geopolitical tensions break out (this was notably the case during the eurozone sovereign debt crisis), due in particular to their cyclical nature, i.e. they are securities that are more exposed to the economic situation.
On Monday June 10, Société Générale dropped 7.5%, then 5% the next day, BNP Paribas plunged 4.8% then 3.9% the following session, while Crédit Agricole returned 3.6% then 3.9% in 2 days.
“Societe Generale, with its 20% drop and its relatively greater exposure to France, seems to be the bank which could experience the strongest positive reaction if the market adopts an optimistic point of view as the new consensus”, analysts abound from AlphaValue.
The sectors which had been the most sold in the first days following the announcement of the dissolution, that is to say banking stocks and utilities (community services) are those which experienced the strongest rebound this morning with almost 5% increase”, analyzes Alexandre Baradez.
Engie is also progressing, by 3%. The speech of the National Rally on the control of energy prices and in particular gas had weighed on the energy group.
In addition to banks and community services, construction and motorway concession groups are recovering this Monday morning. Vinci gained 3.3% and Eiffage 3.9%. These shares had fallen sharply on Monday 10 June, the day after the surprise decision to dissolve the National Assembly. Eiffage then plunged 5.5% while Vinci returned 5.4%.
Let us recall that these two groups operate several motorway concession companies, which are proving to be very profitable. To give you an idea, Vinci Autoroutes’ gross operating margin is around 74%, a high rate linked to the need to finance the significant investments that had to be made by the concessionaires on these infrastructures. The gross operating income (Ebitda) of French motorways accounts for around 40% of Vinci’s total. At Eiffage, the Ebitda margin at its APPR-Area subsidiaries is roughly the same (74.2% in 2023). Goldman Sachs pointed out in early June that APRR (52% owned by Eiffage) accounted for around half of Eiffage’s cash generation.
However, the renationalisation of motorway concession companies was included in the National Rally’s programme for 2022. The market then feared that Vinci and Eiffage would potentially be expropriated of these assets.
Audiovisual groups relieved
The private audiovisual groups TF1 and M6 are also rebounding strongly on the stock market. TF1 regains 5.6% when M6 appreciates by 4.6%. These two titles had suffered from political risk, La Une had then dropped almost 7% while M6 had suffered a little less than its private sister and lost 3.1% during the session of Tuesday June 11.
Fears were fueled by the statements of a National Rally executive, Sébastien Chenu, who had confirmed the day before on BFMTV-RMC that the RN was counting on “the privatization of the public audiovisual service” to reduce France’s debt if it came to power, even if this would not happen “in a fortnight”. This project was already on the far-right party’s agenda for 2022 and is still in the program for the legislative elections.
A privatization of public broadcasting would have had the consequences of weakening the French advertising market. “If this project were carried out, it would naturally be very negative for private players. The French market would not be able to absorb such an increase in competition. However, it seems to us very difficult to undertake and the market situation could make such a total privatization is impossible,” Oddo BHF had developed.
At the end of June, Barclays had also identified several CAC 40 stocks on which market reactions may have been exaggerated after the dissolution. Among these values, the British bank’s strategists had mentioned BNP Paribas or Vinci, to name but a few.
Sabrina Sadgui – ©2024 BFM Bourse
Are you following this action?
Receive all the information on SOCIETE GENERALE in real time:
