The first stock market sessions of the year give an impression of general wait-and-see attitude. No one is rushing to buy, neither in the United States nor in Europe. On the other hand, the market does not seem to be affected by extreme risk aversion either. The rise in interest rates following the hesitation of the American Central Bank to continue on the path of monetary easing constitutes a subject of vigilance, but it does not cause cold sweats. The only big change concerns the reaction of investors to Donald Trump’s increasingly tempestuous statements. These no longer arouse the enthusiasm of the first days. On Wall Street, everyone understood that the future president’s game of verbal one-upmanship is part of his desire to establish his authority before actually taking office.
We started the year by considering “a prudent strategy of gradually ramping up our assets” (see our weekly update of 01/03/2025), with a preference for European stocks which have largely underperformed American stocks in 2024. Our conviction that there is, over the next two or three months, a favorable window of fire for the Old Continent, particularly in France, has been strengthened to the point that we have increased the workload of the set of our PEA portfolios significantly faster than expected.
At the start of the week, several decisions all in this direction were made. In the Defensive portfolio, we acquired 10 new Hermès International shares, 140 L’Oréal and 600 Axa shares. BNP Paribas made its return with 500 securities purchased. One thousand shares of German semiconductor manufacturer Infineon Technologies AG are also acquired. In the Offensive, the orientation towards the technology sector is more pronounced, with the purchase of 1,500 STMicroelectronics, 150 Capgemini, 120 Schneider Electric, as well as the strengthening of positions on Michelin and Axa. A large position was also taken in our selection of World PEA ETFs on the Amundi Stoxx Europe 600 Technology tracker with 1,000 shares acquired. Finally, another 500 shares of the Amundi CAC 40 Ucits ETF were added.
At the start of the week, several decisions all in this direction were made.
We started the year by considering “a prudent strategy of gradually ramping up our assets”.
This increase in our positions on the Paris Stock Exchange constitutes an important turning point compared to the second half of 2024, during which we reduced our exposure to French stocks to its simplest expression. Several elements led us to revise our judgment. The first is due to the enormous delay accumulated by the CAC 40 (-2.1% last year) compared to Wall Street and especially to other European markets such as Germany, with the DAX 40 having ended the year with a increase of 18.85%. Comparing the fundamentals of the two countries does not, in our opinion, justify such a difference in treatment.
The German model based on the export of high-end automobiles and machine tools to the United States or China is suffering from the slowdown in world trade, just like French luxury stocks. Both countries are weakened in their own way, but it will undoubtedly take more time for German industry to regain its supremacy. On the other hand, it will be easier to see the return of Chinese consumers’ appetite for Western luxury products, once activity picks up again. After the drop in turnover that occurred last year in the luxury sector, the bases for comparing activity levels will also become more favorable in 2025.
The political risk premium applied to France faced with indescribable institutional disorder is certainly justified. However, our country is not the only one to find itself in this situation. Italy has long been subject to the same problems and the German risks returning there with a probable absence of a majority in the federal elections to the Bundestag scheduled for February 23. Unlike our close neighbors, we do not have a political culture of compromise well anchored in our minds, but the markets have no reason to doubt our ability to achieve it. Our big problem remains the debt, with a public deficit representing more than 6% of GDP. The implementation of a austerity program towards which we are forced to move should also reassure the markets, even if its pace will seem too slow and laborious to us. Our country can above all count on the clear desire of the European Central Bank to continue its program of reducing key rates this year, which will make the financing of our debt more bearable.
Ultimately, it is not unreasonable to think that after a gap of 20 percentage points between the performance of the CAC 40 and that of the DAX 40 in 2024, we will see a narrowing of the gap in the coming months. in our favor. Especially with an average PER of 15 times expected twelve-month profits, which is historically low given the level of interest rates and forecasts of profit growth (+9% on average of profits of CAC 40 companies this year).
What strategy for the coming months? Our positions in favor of French values which respond to this logic. The stock markets of the euro zone could regain color thanks to a better balancing of the assets of the large international investment funds having in recent months bet everything on Wall Street. While on the other side of the Atlantic most of the good news is now widely taken into account, this is not the case on the Old Continent. There is nothing very spectacular to expect given our weak growth prospects, but it does not take much for the Eurozone indices to get back on track. Especially at a time when visibility on the prospects for development of Asian markets, particularly Chinese ones, remains limited. The aggressive posture adopted by the United States against China, as well as the lack of success of the recovery initiatives attempted by the Chinese authorities, do not argue for a return of capital to the Pacific zone.
This allocation strategy does not respond to a fundamental long-term choice, but to a tactical orientation of our portfolios intended to play a catch-up effect. The rise in the dollar, currently fueled by the tensions observed on American bond yields following more restrictive declarations from the Fed, also argues for a better appreciation of the European rating. The march towards euro/dollar parity, which seems to be accelerating with the price of the European currency falling to 1.03 (-5% in three months), could be a good trigger.
Happy reading and have a good weekend everyone,
Roland Laskine
