Today's economy Podcast Podcast
Why the stock market continues to climb
The Paris Bourse ends the year at its zenith. Its flagship index, the CAC 40, is back on Monday above the 6,000 point bar, a peak it has not reached since 2007. How to explain this euphoria in the market when we expect a slowdown of the activity ?
On the Paris Stock Exchange, as on all other financial centers, the fear of tomorrow is not yet on the radar, we prefer to binge on the good news of the moment: the truce in the trade war between China and the United States was instrumental in the record set on Monday, as was the firm prospect for Brexit. With an indisputable majority in Parliament, Boris Johnson will achieve a divorce on January 31 next as he pledged.
The other promising factor, for Euronext as for the other European stock exchanges, is the persistence of negative rates maintained by the action of the European Central Bank. What good is it to buy bonds that cost you money instead of making money when there are promising stocks on the stock market? It is the wave baptized Tina in the stock market jargon which supports the Paris Stock Exchange; Tina as " there is no altenative ", " there is no other choice " for investors.
Is this optimism lasting ?
As long as the negative rates driven by the ECB are present, and a priori they are well established in the new financial landscape, they will push investors towards European equity markets, firstly because they are more profitable than obligations. Henceforth, the European Central Bank is the “ market maker ” according to analyst Christopher Dembik of Saxo Bank.
Then, this market euphoria can last because there are still great opportunities in Europe to seize: compared to the Americans, European stocks are undervalued. The Stoxx 600, the index that reflects the activity of the largest European markets, gained 24% this year, a peak that it had not touched in four years, but which still seems very weak in the yardstick of New York Stock Exchange prowess. In ten years, the American index has gained 250%, the European only 126%.
How to explain this discrepancy between Europe and the United States ?
First, the Americans reacted to the financial crisis much faster than the Europeans. So they got up much faster. They have drastically cleaned up their banking sector, while Europe is still dragging zombie establishments on its balance sheets. This shift is also partly artificial.
In the United States, large companies buy back their own shares on a large scale, this inflates prices and therefore values the dividends paid to shareholders. A purely financial operation which does not reflect the vitality of a sector. Finally, let's not forget that the tech stocks, the famous GAFAM, are the ones that attract investors the most. However, they are mostly listed in the United States, they weigh a quarter of the American stock market. Europe in general, France in particular, do not yet have a techno nugget that can compete with Google and others.
What are the heavyweights of the French stock market ?
The luxury sector has become the most dynamic thanks to Chinese demand and it is the one that weighs the heaviest in the index. Since 2018, the LVMH group has supplanted Total in first place on the podium. LVMH today weighs more than 200 billion euros; Total, long the flagship value of the index, only 126 billion.
►Short
PSA and Fiat Chrysler have released the wedding banners
The two automakers concluded the merger agreement overnight. The new Franco-Italian-American entity becomes the world number four in the automotive industry.
Japanese exports still weighed down by the trade war
In November, they recorded their 12th month of decline. Mainly because of the drop in purchases by their Chinese and American customers.