French stocks are on track to deliver their worst annual performance in years, with indices like the CAC 40 suffering from a slowdown in the luxury sector and rising concerns about political stability.
The French stock market, particularly the CAC 40, could be headed for its worst year since the global financial crisis of 2007-2008. Investor fears have been compounded by worries over the country’s political climate, the potential for tariffs if the EU-China trade war intensifies, and escalating tensions between the EU and the US.
Additionally, the ongoing cost of living crisis, high interest rates, and soaring inflation have dampened economic growth in France, which is lagging behind some of its European counterparts. This has led to decreased investment both domestically and internationally. A rising budget deficit and the snap elections earlier this year have only added to investor concerns.
So far this year, the CAC 40 has dropped 3%, though it gained 2.78% this month and 1.25% in the past week. In contrast, major European indexes have performed much better, with the Stoxx 50 rising 7.96%, the Stoxx 600 increasing by 5.42%, and the German DAX up 18.46% year-to-date.
One significant factor behind the CAC 40’s poor performance is the global slowdown in the luxury sector. With luxury brands like LVMH and Kering making up a substantial portion of the index, their struggles have heavily impacted the overall performance. LVMH has dropped 13.83% this year, while Kering has seen a staggering 45.90% decline. However, Hermès has bucked the trend, with a 20.42% increase in its stock value.
A key issue for these luxury companies is the reduced spending from Chinese consumers, a major market for high-end goods. After a boom during the pandemic, demand for luxury products has cooled, as fears grow over China’s economic downturn. Despite the Chinese government’s announced stimulus plans to boost market confidence, it may take considerable time for these measures to affect consumer spending and market activity.
In addition to the luxury sector, French automakers like Stellantis and Renault have faced increased competition from Chinese car manufacturers, particularly electric vehicle (EV) producers such as SAIC, Geely, and BYD.
