Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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