Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

French Economic Reforms Improve Appeal of Cheap French Stocks

Stock-Markets / European Stock Markets Aug 03, 2008 - 01:44 PM GMT

By: Money_Morning

Stock-Markets Best Financial Markets Analysis ArticleMartin Hutchinson writes: French investments might have seemed like a bad idea for the first nine months of French President Nicolas Sarkozy's term. After his election in May 2007, Sarkozy looked like a huge disappointment - unless you REALLY enjoy tabloid stories. He divorced his wife, married the spectacularly beautiful ex-model Carla Bruni, and went on an enviable honeymoon in Egypt - but appeared to do nothing useful about France's economic problems.


But now there's some good news for French investments. Like all good Frenchmen, Sarkozy may have preferred first to concentrate on his private life when elected President de la Republique. But with his private life now settled he's been able to spare some time for France's economic problems. And the results for France's future economic performance and French investments are quite positive.

First, Sarkozy got rid of the 35-hour week. This economy-destroying measure, by which companies were forced to institute a maximum 35-hour workweek, was brought in by the Socialists in 2000, and has embedded itself throughout the French economy, increasing labor costs, reducing productivity and harming French investments. Removing it will not make much difference for big business - as one union leader said “nobody wants to renegotiate the 35 hours and reopen Pandora's box” but it will make a huge difference for medium-sized and smaller businesses, which will be able to match their workforce with the demands of their business, without being forced into a straitjacket by the state.

Sarkozy has also passed reforms freeing up France's retail sector to increased competition with longer operating hours, tighter regulation of unemployment benefits, and freedom for firms to negotiate directly with employees rather than deal with a union.

In addition to these economic reforms, Sarkozy has pushed through constitutional reforms, limiting the president to two five-year terms and giving the legislature more power to introduce legislation.

The remarkable feature of Sarkozy's burst of reformism is that the French unions have been unable to tie up the streets of Paris with major demonstrations, as they had done to stall several previous bursts of reformism in the last decade. A Day of Action protest in June had only half the expected turnout and a nationwide strike had only 4% support.

Sarkozy's tactic has been to move forward with reforms on several fronts at once; this seems to have worked, and Sarkozy's opinion poll numbers have recovered from lows hit in early spring.

The benefits of these reforms will be seen most clearly in France's next period of economic expansion, which may not be immediate because of the general global slowdown. France's gross domestic product (GDP) is expected to increase only 1.7% in 2008, according to the Economist , the same as the average for the 15-nation Eurozone as a whole .

On the bright side, inflation is expected to be only 3.2%, below the Eurozone average and well below U.S. inflation rates. The balance of payments deficit is only 1.6% of GDP, well below both the United States and Britain, in spite of the current high valuation of the euro. Euro short-term interest rates are currently 4.25%, above France's inflation level, and French long-term government bonds yield 4.8%, well above inflation, so there is little danger of an inflationary spiral.

French Investments to Fatten Your Portfolio

A further advantage of the French stock market is that it is currently cheap, trading at only 11.5 times earnings. The CAC-40 index is down about 25% this year, similar to the performance of the Dow Jones Industrial Average Index , but it had risen nowhere near as far between 2003 and 2007, and is still 30% below its 2000 high. With France's economic and political prospects looking brighter than they have in a long time, French investments could be an attractive part of your portfolio.

First, you can buy the index. The iShares MSCI France Index ( EWQ ) is an exchange-traded fund (ETF) with a value of $266 million, sufficient for liquidity, that is currently trading at the French market's Price/Earnings (P/E) ratio of 11.4, well below the S&P500 Index P/E ratio of 14.6. Because France is unlikely to suffer a deep recession and isn't playing host to enormous write-offs in its financial sector, it is reasonable to expect that the index would trade at a premium to the S&P 500, so that's already a bargain.

Attractively, EWQ also carries a 4.9% yield, denominated in euros, giving income investors an attractive diversification from the U.S. market, which even after its recent drop yields only 1.7% on the S&P 500.

Second, you might consider France Telecom SA (ADR: FTE ) which operates both fixed and mobile telephone systems in France, Britain, Spain and Poland - almost all of its operations in Europe, therefore, without significant exports to the dollar zone. France Telecom is very reasonably priced at 8 times trailing earnings. Even more attractive, it has a dividend yield of 6.2%, again denominated in euros - it thus represents an ideal investment for income-oriented investors.

Investors wanting a stock with recovery potential might consider AXA (ADR: AXA ), a huge insurance company and asset manager based in France but with substantial operations worldwide. Because of the battering taken by financial services companies, AXA currently trades at only 6.5 times earnings, with a 7% yield. The one caveat is that insurance companies are given a lot of flexibility when “marking to market” their investments; it's therefore possible that AXA has a large exposure to the U.S. subprime market or some other disaster that it hasn't owned up to. However, the stock's low rating and high dividend certainly compensate you well for this risk.

Finally, there's a somewhat higher rating at 13 times earnings (but alas, with no dividend) for France's largest geophysical company CGG Veritas (ADR: CGV ). CGV provides geophysical services to the oil and gas industry worldwide, and manufactures land, marine, and subsea data acquisition equipment. Needless to say, business at CGV is booming, so the forward P/E ratio is only 9.38.

As I said, French investments seem well worthwhile for a substantial chunk of your money.

News and Related Story Links:

By Martin Hutchinson
Contributing Editor

Money Morning/The Money Map Report

©2008 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules