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French stocks are on track to deliver their weakest annual performance since the depth of the Eurozone crisis, as investor worries about prices and political turmoil combine with tepid demand for luxury goods.
Paris's Cac 40 index is down 3 percent this year, compared with a 6 percent gain for the Stoxx Europe 600 for the rest of the region, after a strong start to the year driven by big sales at companies like LVMH that are in meltdown.
Investors have been caught up in political turmoil, sluggish demand from key export market China and a weak domestic economy. The prospect of a trade war after US president-elect Donald Trump threatened harsh tariffs on goods added to the situation.
“There are a lot of things happening at the same time (that) people want to stay away from French names,” said Roland Kaloyan, head of European equity strategy at French bank Société Générale. “This decline has been very noticeable.”
Political turmoil is weighing heavily on the French market, analysts say, with François Bayrou becoming the country's fourth prime minister this year.
That frustration has fueled debate about how the country will deal with its growing budget deficit. Investor uncertainty about the state of the country's finances has already pushed 10-year borrowing costs above 3 percent this year and the extra margin France pays on German debt has reached its highest levels since the Eurozone debt crisis.
Earlier this month Moody's downgraded France's credit rating following outgoing prime minister Michel Barnier's vote of no confidence, citing a “materially weak” economic outlook.
The falling price of French stocks stands in contrast to neighboring Germany, where it is 18.7 percent profits in the country's stock market this year he defied the darkness that enveloped the local economy.
Luxury goods companies, the core of the CAC 40, have struggled as it has become clear that China's economic recovery from the pandemic has stalled.
The rise of China's middle-class consumers this century has transformed the profits of luxury goods companies, with shoppers flocking to capitals in Europe and Asia alike to buy designer handbags and other goods.
Covid then bought things higher as bored shoppers stuck at home spending furlough payments on accessories and premium alcohol. Profits in companies such as LVMH and L'Oréal giant, grew in double digits.
But Chinese consumers have curbed their spending on concerns about a sharp economic slowdown. Beijing has announced serious plans to revive confidence in the economy and markets.
“The big disappointment in China is probably at risk,” said Caroline Reyl, head of prime products at Pictet Asset Management, adding that she now expects the Chinese government's stimulus to translate into consumer activity as she “doesn't expect the situation to worsen”.
Still, more than one fifth of the CAC 40's consumer goods companies are “underweight” China, including LVMH and Kering – down 12 and 40 percent this year respectively.
Emmanuel Cau, an analyst at Barclays, said the market was “divided” over whether luxury goods companies would bounce back in 2025 or earnings would weaken again. He predicts sector growth of just 3 percent next year, at constant currency rates. “This has been a year of pain,” he added.
It's a combination that puts the Cac 40 on track to become the only major stock market worldwide to end the year in the negative.
French banks and insurers, which make up 10 percent of the benchmark, have fallen sharply as they are vulnerable to slower economic growth and also hold more government debt, which investors now view as risky.
BNP Paribas, Europe's largest bank and often sold by investors as a proxy for the French economy, has fallen 8 percent this year.
Strong competition from Chinese electric vehicle makers and political turmoil have hit automakers, including Stellantis. Shares in the company behind the Peugeot, Fiat and Jeep brands fell 41 percent in Paris this year.
As the CAC 40 struggles, French companies have begun to look for other capital markets. Pay TV Canal+ operator listed in London this month, although shares have fallen nearly 30 percent since they began trading.
TotalEnergies said it was “seriously exploring” a US listing, while fast-growing asset manager Tikehau told the Financial Times last month it was considering moving its listing from Paris to the US.
However, France's struggles also reflect the challenges the continent's politicians are currently facing, including encouraging growth and the prospect of a global trade war and tax shock after Trump's election victory.
Barclays' Cau added: “We need some sort of stimulus for Europe to take care of itself. It used to depend on China but now the country is not global and China is growing slowly. ”
Additional reporting by Ian Smith