Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Dow Trend Forecast Current State - 22nd Apr 21
Gold Rebounds Amid Positive Economic Reports - 22nd Apr 21
China's record first quarter fuels strong expansion in 2021 - 22nd Apr 21
Gold Price Next Key Level - 22nd Apr 21
Here's What to Look For When Hiring a Real Estate Agent - 22nd Apr 21
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

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