The CAC 40 has been lagging behind other major equity indices on the planet for a year, with a gain of only 1% for the Paris Stock Exchange, compared to an increase of 12% for euro zone equities (Euro Stoxx 50 index). ), a surge of 23% for the German DAX stock index, an increase of 16% for the Tokyo Stock Exchange or even an advance of 30% (!) for the Nasdaq 100 (stock index rich in values technology and growth in the United States). This notable underperformance of the Paris Stock Exchange in 2024 is explained by the weakness of the luxury and cosmetics behemoths of the CAC 40 (LVMH, Kering and L’Oréal) and by the rise in perceived political risk in France.
But fears about France must be put into perspective, judges Swiss asset manager UBS WM. If the rating agency Moody’s downgraded its rating on December 14, this gesture only reflects the recognition of reality rather than a further significant deterioration of the fundamentals of France, explains the asset manager. Certainly, the public deficit should be around 6% this year, while the worrying political situation in France hampers the government’s ability to significantly reduce this deficit, but beyond the challenges facing France, the prospects for France are perhaps not as dark as some fear, judges UBS WM. And this, for several reasons.
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The ECB should support growth in France and Europe, and investors have confidence in the signature of France
First, the fall in bond rates worldwide also benefited France, despite high risk premiums. Then, France’s debt burden represents 3.5% of public revenue, compared to around 8% for Italy and 13% for the United States. Furthermore, while the ECB is expected to lower its key rates by a percentage point this year (according to UBS WM), these hoped-for rate reductions should support economic growth and weigh on government bond rates.
Then, in mid-2024, French debt benefits from a very diversified investor base (Banque de France, French investors, banks, insurers, non-French central banks, pension funds, etc.), which reflects, according to UBS WM, the investor confidence in the French signature, “both for its technical qualities and for its principles of predictability, regularity and transparency”.
The CAC 40 could remain sensitive to political risk, but there are reasons to hope for Europe
Finally, beyond the specter of the trade war brandished by Donald Trump (which targets Europe, China, etc.), France could benefit from certain reasons to be more optimistic for Europe this year, between “a coalition more stable” and “progress in negotiations between Moscow and kyiv” to end the war in Ukraine, indicates UBS WM. Political hazard could favor a certain volatility of the CAC 40, if necessary, but the trajectory of euro zone equities depends more on fundamentals (growth, trajectory of profits of companies listed on the stock exchange) than on French politics. However, the European stock market seems quite inexpensive, even if the profits of listed companies in the euro zone should only slowly recover this year, according to UBS WM.
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LVMH, Kering… Will the luxury giants of the CAC 40 be better off on the stock market this year?
Finally, while LVMH, Kering and L’Oréal weighed down the CAC 40 last year, some fund managers (such as Edmond de Rothschild) believe that the luxury sector could already have eaten its black bread. Especially since the financial community is hoping for more robust recovery measures for the Chinese economy (a key market for the luxury sector). In addition, DNB AM highlights the strong demand from clients in the Middle East and the United States and the asset manager judges that there is still room for price targets on the luxury giants of the CAC 40 ( there is still potential for theoretical appreciation, from here to the fair prices estimated by financial analysts for these shares).
In this regard, DNB AM underlines that the favorable dynamics of the stock market and the strength of the real estate market in the United States have enriched American households by 10,000 billion dollars in 2024 alone. household consumption and therefore for the sales of the luxury giants of the CAC 40. Readers of Momentum, the daily premium investment letter from Capital on the Stock Exchange, were able to make massive gains on LVMH shares, Kering, Hermès and L’Oréal (bought and resold at good timing on several occasions) in recent years. Discover every day in Momentum our expectations on the CAC 40 and stocks listed on the stock exchange. By opting for an annual subscription, 5 months are free. To take advantage of it, simply click on the link inserted above in this article.
