Is it time to reinvest in France?
In principle, there is little to kindle investor appetite for France: a fifth Prime Minister in under a year and a half and still no clarity on the political future, a fiscal situation that continues to deteriorate, the CAC 40 bringing up the rear among European indices this year, a 10-year yield that is close to the highest of all major eurozone countries. Yet investors may remember the famous quote by Sir John Templeton: “Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria.”
The last part of this saying may soon apply to US markets, whilst the first could certainly be applied to French stocks. Firstly, from a purely tactical perspective. On stock markets, the end of the year is an auspicious time for the losers of the initial quarters of the year to stage a relative catch-up. As the Spanish IBEX 35 index is bubbling around the +35% mark since the start of the year, the Milan stock market is up more than 25% and the German DAX has risen by close to 20%, investors could be tempted to look for a second wind in European equities via laggards such as France, where the CAC 40 is up just 9%.
This is especially the case as France has numerous advantages that are often hidden by the prevailing gloom. At corporate level, whilst the CAC 40 is lagging its European counterparts, dragged down by the setbacks of the luxury goods giants in particular, the small-cap index, the CAC Small, is outstripping comparable indices, up 52% since the beginning of the year. Of course, this surge is due to the explosion of over 700% in the price of biotech stock Abivax since the announcement on 23 July of the success of its treatment against ulcerative colitis. Yet behind this company stand no fewer than eight other stocks whose value has more than doubled since the beginning of the year. There are still some sparkling successes in French innovation. And foreign investors are well aware of this. Since 2014, more than 1,600 companies have switched from the French to the US flag. Whilst it is sad to see the flight of these stars, this only serves to emphasise the quality of French creativity, even in a less than promising economic, political and regulatory environment.
Secondly, from a more macroeconomic perspective, France has a major reserve at its disposal to relaunch its growth. The savings ratio, i.e. the percentage of disposable income that is not spent on consumption, is at its highest ever level in France (with the exception of lockdown periods during the pandemic). In other words, the French have never saved as much and consumed as little. This is not surprising: the succession of crises in recent years – Covid, the war in Ukraine, rampant inflation – combined with the political crisis of recent months have depressed consumer morale. And for as long as this is plummeting, the outcome will remain the same – an approach to savings/consumption which increasingly favours precautionary saving at the expense of consumption.
Whilst this is bad news for economic momentum in the short term, it provides grounds for hope in the longer term. A distinct improvement in consumer confidence, which will certainly be linked to major political renewal, among other factors, could cause savings/consumption behaviour to reverse. If the savings rate – which today stands at 18.6% – were simply to return to the average pre-Covid level of 14%, this would represent a particularly powerful accelerator for consumption, and therefore for growth. This is even before considering the potential for the savings accumulated in recent years to be spent.
In other words, France has the means to generate real economic improvement. To achieve this, it will need to regain its confidence, and unlock certain brakes on its creativity, which nonetheless remains effervescent. This may be wishful thinking, but on stock markets, the best deals can often be made when no one believes in them.
N.B.: Performances cited are expressed with net dividends reinvested, as at 11 September 2025. Source: Bloomberg.