Investment idea: CAC 40
The election victory of Emmanuel Macron has led to multiple reform plans for France, but not everyone seems to be on board with these plans.
In May this year, Emmanuel Macron won the French elections by defeating Marine Le Pen and so the calmness returned on the markets. Populism was put to a halt within one of the largest economies of the Eurozone and because of that the fear for a further breakdown after the Brexit was no longer the case. Macron claims that the Brexit offers opportunities to boost the French economy, for example by convincing London bankers to move to Paris.
The new president of France also announced several reforms, such as lower taxes for businesses and a more flexible labour market. With these measures Macron wants to make French businesses more competitive and make France more attractive for foreign companies to settle. With this Macron also wants to decrease the unemployment that has have been over 9% for over a decade now.
So far the plans of Macron have led to fierce protests and strikes under command of the French unions by the French population. According to a spokesperson of the EDF, which among other things manages 48 French nuclear reactors, approximately 11% of the employers took part in a recent strike.
The Banque de France expects that the French economy will grow with 0,5% during the third quarter of this year compared to the previous quarter. This could mean that the growth in the first six months would be continued.
The central bank claims that the industrial production showed a slightly delayed growth in August, but that the growth in the services was ‘sturdy’ and the activities in the construction sector where ‘strong’. The sentiment indicator for the French industry decreased from 105 to 104, while services and construction increased to 100 and 103. The long term average of the indicators is 100.
The CAC 40 is now 19% higher at 5,210 points compared to a year ago, partly because of the relieve regarding the French election results.
Companies listed in the CAC 40 are generating 61% of their turnover within Europe, which makes them vulnerable for a strong local currency when oversees turnover is booked in euro’s. Companies such as Airbus, L’Oréal and LVMH generate a large part of their turnovers outside of France and therefore may profit less of the lower domestic taxes. On the other hand companies such as Renault and EDF could benefit from this.
With a continues economic growth and plans for dealing with the unemployment in France, it remains to be seen if the momentum of the French strikes is being detained. However, the popularity of Macron among the French population has strongly decreased in the past months.
Should the reforms of Macron succeed, this could give a positive impulse to the economic growth of France and the Eurozone. This could also stimulate other countries within the Eurozone (such as Italy) to reform.
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