Beyond investors’ immediate political concerns (which have dominated the
investment landscape over the last year), the regions’ cyclical upturn is
gathering strength based on a confluence of positive factors: rising
confidence, increasing profit margins and highly accommodative financing
conditions. In an unloved region of the world, this is an interesting
Consider France itself. Can pessimism toward the country get any worse?
Bank of America Merrill Lynch’s latest survey of money managers recently
revealed that the country’s equities are the least loved major equity class
This may be a contrarian’s dream. At times like this, it pays to look for
sentiment shifts at the margin. Any sign of a brighter outlook can have a
large impact on expectations. With significant space for investors to
downgrade their optimism towards the US, the opposite is true in France –
beyond the election risk, plenty of room for positive surprises exists.
Below, we lighten the gloomy mood toward French stocks with our own joie de vivre: It is time to buy. Consider the following:
French PMIs are pointing to solid growth, with the country’s composite
climbing to an 18-month high.
With unemployment falling, and wages beginning to pick-up, inflation
expectations are finally starting to rise.
3. Interest rates.
A steepening yield curve has lifted bank stocks, which tend to lead to
increased credit creation.
4. The euro.
With the euro nearing parity to the U.S. dollar, the country’s
competitiveness has dramatically increased over the last few years, further
priming it for a profit up-tick (and prompting a recent rash of positive
5. Equity valuation.
French stocks are cheap, trading at 1.59 times their book value, compared
to the U.S. at 3.09 times (MSCI figures).
Much like the conditions in 2016 with Brexit or U.S. elections, the course
of the French election will dictate near-term movements in eurozone, and
perhaps even global equities. However, investors should look beyond the
political risk of France’s presidential election in April and May and
tactically buy French equities based on solid macroeconomic and valuation
Finally, for fellow wine enthusiasts looking for value, we recommend the
2010 Château Jean De Trimoulet, an elegant (yet very attractively priced)
Bordeaux with lots of ripe black plum, coffee and just a hint of nut.
Tyler Mordy, CFA, is President and CIO for
Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities
selection. He specializes in global investment strategy and ETF trends.
This article first appeared in
Forstrong’s Gobal Thinking feature. used with permission. You can reach Tyler by phone at Forstrong
Global, toll-free 1-888-419-6715, or by email at
. Follow on Twitter at
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