By Tom Becket
If Paris were a country it would rival cash-rich middle-eastern countries and emerging powerhouses, like Singapore. This is especially the case after my wallet- busting weekend with the wife by the Seine. Expect a much-needed fillip for French retail sales data.
Paris though does not tell the truth about a country that is increasingly looking like the sick man of Europe; certainly much more ‘periphery’ than ‘core’. Paris might have looked lovely in the glow of the retardant April sun, but la France is not ‘belle’ at this time. The moniker of the ‘ticking time-bomb at the heart of Europe’ given by the Economist late last year is starting to look prophetic.
In the last few weeks we have seen every data point confirming what we had feared; France is sinking further in to the economic mire. Unemployment is rising, all parts of the economy contracting and business confidence collapsing. In short, ce n’est pas bien. The worst thing is that any recovery seems truly elusive and businesses and consumers either don’t want to or can’t spend.
Outside of Paris there has been a massive slump in property prices, such as the 40% drop in ‘Dordogneshire’, where so many of our rich middle-aged Brits now reside.
But I thought that things were supposed to be getting better after last year’s election? Francois Hollande might have rode in to the Palais d’Elyssee aboard a horse of change, but he didn’t say it was going to be a change for the worse. The man is best described as an ‘economic imbecile’ and he is utterly bereft of sensible ideas to get his labouring country back on the right foot. Indeed he has managed to achieve the lowest ever popularity ratings of a French leader in his first year of power. And that is too high!
His popularity has been rocked by fresh political scandals, despite his election promise that there would be none on his watch. However, aside from his dodgy mates, the key issue affecting French confidence is the inability to tame the budget deficit that is still uncomfortably high and will be in excess of permitted levels by the European authorities. While this is manageable when French bond yields are so incredibly (and undeservedly) low it is not a massive issue. However, as we have seen from France’s periphery pals, any change in sentiment can send your cost of debt spiralling out of control. Any move higher in French bond yields could be destructive to the outlook across la Manche. Indeed, France might be the first European bond market that is controlled by foreign money to be tested. One imagines capital would flood from French bonds.
Is there any sign of hope? M. Hollande has given every indication through his buffoonery that he is anti-business and changing that reputation will be hard. France will continue to suffer the ‘braindrain’ across the Channel that irks their leader so. Perhaps if he stopped his comedy Sheriff of Nottingham tax-collector impression it might at least slow. France’s public sector continues to grow faster than the private sector, as it has every year since 1987. Zut alors, mon ami, this’ll be a big ship to turn. In short, France est une grande probleme. We are watching sentiment towards the once great nation very closely, particularly through their bond yields.
This just hopefully illustrates that European equities are cheap, but they are cheap for a reason. Envoyez les clunes.
Tom Becket is chief investment officer at PSigma Investment Management
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