Opinion Leaders
France: The markets in the countryside
-
Enguerrand Artaz
Strategist
La Financière de l’Échiquier (LFDE)
The political season is still ahead of us, the final cast of the presidential election is far from being fixed, and yet the electoral campaign has already begun in France.
On television and social media, certainly, but also in the financial markets. The uncertainty surrounding the vote on the next budget acts as a rehearsal for the big meeting in May 2027 and is already giving rise to a clear bias among investors.
On the interest rates side, it’s time for tension. The French 10-year yield has crossed the 4% threshold and now stands at levels not seen since 2008. And while this takes place against a backdrop of a global increase in interest rates worldwide, the French specificity is no less real. The spread with the German 10-year yield – a traditional risk measure observed on the fixed income markets – returned to the highs reached in 2024 after the dissolution of the National Assembly. Furthermore, among the 21 countries of the eurozone, none, not even Greece or Bulgaria, is financed as expensively as France at this time.
This distrust of the bond markets is reflected in the behavior of the stock markets. Since the beginning of the year, the CAC 40 has underperformed all European equity indices, rising only 4.8% compared to 13.3% for the EuroStoxx1. It would be tempting to attribute this underperformance solely to the composition bias, as the flagship index of the Paris stock exchange suffers from its exposure to luxury goods and the automotive sector, which has again come under fire this year. But a look at the other French stock market indices contradicts this hypothesis. The CAC Small, the French index for small caps, thus significantly underperforms its European equivalent.
This underperformance is not the result of chance. Many market intermediaries today report growing interest from international investors in products offering a short position on French equities. Hedge funds even recognize that they stay away from certain stocks, considered very qualitative by their teams, simply because they are French.
This investor skepticism towards French assets clearly reflects uncertainties about upcoming political events, the budget vote first and then the presidential election. But it also reflects a legitimate fear towards the country’s economy. France is expected to once again have the worst public deficit in the Eurozone in 2026. It has one of the highest debt rates, surpassed only by Italy and Greece. At 8.2%, the unemployment rate, one of the highest in the Eurozone, has risen back to 2020 levels, even though throughout the zone this rate remains at historical lows. The latest activity indicators, although they recovered slightly, remain in contraction territory while the rest of the eurozone, including Germany, is expanding. As for GDP growth, after contracting by -0.2% in the 1st quarter, it was revised to 0% for the 2nd quarter, placing the country on the verge of a technical recession.
Therefore, both on equity markets and bond markets, investors are not only protecting themselves from a period of political uncertainty. They are beginning to position themselves against a worrying economic and financial situation, facing which the upcoming presidential election is taking on the air of a last chance.
__
Disclaimers: These data and opinions of LFDE, as well as the sectors and securities mentioned, are provided for information purposes only and therefore constitute neither an offer to buy or sell a security nor investment advice nor financial analysis. The opinions are those of the author and in no way imply the responsibility of LFDE. Past performance is not indicative of future performance.
__
1Performance with dividends reinvested, as at 27/08/2026.
