The underperformance of the SBF 120 since January 1 relative to the MSCI Europe and S&P500 indices is the most significant in the last 25 years, the managers of Edmond de Rothschild Asset Management (Edram) recently highlighted. The French market has indeed accumulated bad news in recent months, including weak growth in Europe and the dissolution of the National Assembly.
This underperformance is accompanied by undervaluation. In terms of 12-month PER, the SBF 120 trades at a little less than 13 times earnings, i.e. the low historical average.
“Today, the valuation discount of 25% of the European and French markets relative to Wall Street is twice as large as its historical average,” explains the manager, Guillaume Laconi.
Earnings per share forecasts for 2024 have also been lowered by 11.5% for SBF 120 values since the announcement of the dissolution of the National Assembly, to compare with a reduction of 3% to 4% for the MSCI Europe index, which includes French companies.
In detail, political uncertainty represents a quarter of this revision and the increase in the tax rate another quarter. The balance is explained by the slowdown in activity and the sectoral composition of the French market, which is particularly exposed to luxury.
French values a good contrarian call
The asset manager also notes the extremely strong underpositioning of investors in French equities.
Edram also emphasizes that French stocks are not a proxy for the GDP of France or the euro zone due to their international exposure.
These negative elements being known and integrated by the markets, Guillaume Laconi judges that “taking an interest in French values constitutes a good contrarian call”.
Asked about the factors that would allow a renewed interest in French equities, he cites the reduction in the feeling of risk and uncertainty thanks in particular to better visibility on the customs duties of the future Trump administration and on the improvement of activity in China. “What could be worse in Europe?” concludes the manager.
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