Today, our negative focus is on the French Stock Market, while the positive spotlight shines on Bitcoin. But first, let’s address the French political and economic turmoil and its impact on the stock market.

Political Turmoil in France

As you have likely seen in the news, France’s political landscape is currently in chaos. This week, for the first time in 66 years, the French government lost its parliamentary majority, resulting in a no-confidence motion against Prime Minister Michel Barnier and his resignation. This type of scenario can only happen once a year, and it highlights a deep political divide within the country. While new elections are expected next summer, for now, the political stalemate has left the budget for 2025 in limbo.

What makes the situation so challenging is the fragmentation of the political spectrum in France. The extremes on both the left and the right are growing in strength, while the center struggles to find common ground. This division makes it difficult to achieve any consensus, particularly on critical financial matters like the 2025 budget. Without a clear direction, the government faces significant obstacles, and the consequences for the broader economy are already becoming visible.

The Economic Consequences: Rising Interest Rates and Debt Refinancing

One of the most immediate effects of this uncertainty has been rising interest rates. This week, the market made a striking decision: French government bond yields surpassed those of Greece. Let that sink in for a moment—the markets now view France as a higher-risk debtor than Greece, a country historically synonymous with debt crises. This is not just symbolic; it has real economic implications.

In 2025, France must refinance an enormous sum—€300 billion worth of debt. With higher interest rates, the cost of this refinancing will be significantly more expensive, adding further strain to the French economy. Investors are understandably concerned about the stability of one of Europe’s largest economies, particularly given the fragile state of its government.

The Impact on the French Stock Market

The stock market has not been immune to this turmoil. With the year coming to a close, let’s look at how the French market has performed compared to its global peers. The CAC 40, France’s benchmark index, has underperformed in 2024. After showing some gains during the summer, it has since declined and currently sits slightly negative for the year.

By comparison, Germany’s DAX index, despite its own economic headwinds, has performed far better. The DAX started the year around 16,700 and has climbed past the 20,000 mark. Meanwhile, the S&P 500 in the United States has surged, starting at 4,700 and pushing above 6,000. While other global markets show growth, the French stock market remains stagnant.

Are French Stocks a Buying Opportunity?

Some investors may see this downturn as an opportunity to buy French stocks at a discount. After all, when a market declines, it often presents buying opportunities. However, a deeper analysis suggests that French equities are still relatively expensive. The price-to-earnings (P/E) ratio for the French stock market currently stands at 17.3. To put this into perspective, the five-year range for the French market has been between 14 and 17.6, meaning that current valuations remain on the higher end of this range.

If we take a broader view, comparing France to other global markets reveals further concerns. The average P/E ratio for Western markets (excluding the U.S.) is 16, which is lower than France’s. Markets like Germany, Italy, Japan, and even the United Kingdom are cheaper in comparison. For instance, Italy’s stock market boasts a P/E ratio of just 10—a clear bargain relative to France.

Technical Indicators: A Negative Trend

From a technical perspective, the outlook for the French stock market remains bearish. Both the 50-day and 200-day moving averages are in decline, signaling a negative trend. This suggests that the market is not just experiencing short-term volatility but is entrenched in a broader downtrend. For investors seeking stability and growth, this is not an encouraging sign.

A Balanced View: What Should Investors Do?

While the French market poses significant risks, it is essential to approach the situation with a balanced perspective. Political and economic instability often create opportunities for well-informed investors who can navigate the risks. At Hugo Investing, we emphasize the importance of aligning your investment strategy with current market conditions. If you are uncertain about the impact of these developments on your portfolio, contact us. Our specialists are available by phone, email, or appointment to help you make informed decisions.