A record number of investors plan to reduce exposure to French equities as the country's political and fiscal stresses cast a shadow over regional stocks, according to a Bank of America Corp. poll. The survey of regional fund managers, conducted between Oct. 2 and Oct. 8, showed that 56% of them would underweight France over the next 12 months, making it the least preferred market in Europe.
Both French equities and sovereign bonds have sold off in recent weeks, with borrowing costs rising to levels not seen in almost a quarter of a century. France's blue-chip CAC 40 index is down 3.8% year-to-date, compared with a 7.8% gain for the broader European benchmark. Prime Minister Sébastien Lecornu is trying to win parliamentary backing to pare the fiscal shortfall to 5% of economic output in 2027, a target he missed this year. The budget proposal was described as "optimistic" by the nation's fiscal watchdog.
Investors are also on edge ahead of next year's presidential election, with recent polling indicating it may come down to a runoff between far-right front-runner Marine Le Pen and far-left rival Jean-Luc Mélenchon. A net 63% of respondents saw "French fiscal sustainability and the 2027 election cycle as the largest political risk" to European markets over the next 12 months, a Bof A team including Paulina Strzelinska and Sebastian Raedler wrote in a client note.
France's fiscal crisis has been exacerbated by nationwide protests by young people demanding €10 billion ($11.2 billion) in funding to fix overcrowded classes and outdated school buildings. The situation has sparked concerns about contagion to other countries' debt, with Italian and Greek yield spreads also rising. Raedler himself is more optimistic, having upgraded French stocks to overweight last week, citing limited further upside in the OAT-bund spread. The CAC 40 edged 0.2% higher by 12:41 p.m. in Paris, underperforming the Stoxx Europe 600's 0.4% rise.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing