(News Bulletin 247) – Over the whole of 2024, only one other global index in developed countries is doing “worse” than the CAC 40, namely the Seoul Kospi. An underperformance which is due both to the political context since the dissolution of the National Assembly in June, and to the poor performance of the heavyweights of the CAC 40, weighed down by the economic slowdown in China

The CAC 40 suffered again this week. Friday, the Paris Stock Exchange benchmark index closed the week with a weekly drop of 0.94%, having in passing recorded its worst session since July 2023 on Tuesday (-2.69%).

The CAC 40 was especially penalized by fears of a trade war, due to customs taxes wanted by the elected American president, Donald Trump. These fears have, in reality, weighed down all European markets, with the Stoxx Europe 600 losing 0.65% over the week.

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Beyond market speculation on the consequences of Donald Trump’s return to the White House, we must recognize that the CAC 40 appears like an ugly duckling on the stock market. And underperforms in just about everything it’s possible to underperform.

A simple glance at the investing.com data shows this. Since the start of the year, the CAC 40 has fallen by 3.63% while the Euro Stoxx 50, a pan-European index, has gained 6.1%.

Above all, the CAC 40 marks the only drop in Western European indices, over the whole of 2024. Apart from the Paris Stock Exchange barometer, the PSI, the benchmark index for the Lisbon market, is the one with the worst performance (+0.49%). Other European markets recorded marked increases, notably the IBEX 35, the major Madrid index, and the DAX 40, that of Frankfurt, which advanced by 15.2% and 14.7% respectively.

Expanding to all stock exchanges in developed countries, only one other place is doing “worse” than Paris, namely Seoul, with a benchmark index, the Kospi, which loses 8.8% over the whole of 2024. The poor performance of shares of groups specializing in technological equipment and the sensitivity to rising interest rates weighed on the performance of the index,” JPMorgan explained in August to justify the poor performance of Korean stocks. The Kospi also particularly suffered from renewed fears over trade and disappointing recovery measures from the Chinese government.

To return to the CAC 40, how can we explain that it lags so far behind other global indices?

The end of the dissolution of the National Assembly

The first element of the answer is quite obvious and is linked to the political uncertainty caused by the dissolution of the National Assembly on June 9. The CAC 40 was previously moving close to its absolute records. After the dissolution, the Parisian index never again approached the threshold of 8,000 points.

“The question of dissolution and associated political risks was the first trigger for underperformance of the CAC 40. Political risk weighed because the market, from the month of June, feared seeing radical political groups emerge with significant tax changes. This risk weighed not only in June but throughout the summer,” explains Alexandre Baradez, head of market analyst at IG France.

“The market was not wrong: if the risk of political radicalism did not materialize, taxation was indeed modified. With the risk that measures taken temporarily to reduce a deteriorating deficit would not become lasting,” adds- he. The current government has, for example, decided to increase for two years the corporate tax paid by companies with more than a billion euros in turnover in France.

Political risk combined with a deterioration in the public deficit which contributed to increasing the famous “spread” with Germany. This “spread” measures the yield gap between French and German 10-year sovereign bonds, constituting a measure of market confidence in France’s signature. From around 50 basis points (0.5 percentage points) this “spread” widened to more than 80 basis points, and is now moving around 74 basis points. This renewed tension also weighed on the stock markets.

Luxury suffers

But political risk does not explain everything. The underperformance of the CAC 40 is also due to the difficulties of “its heavyweights”, notes Alexandre Baradez.

Sometimes considered a “luxury” index, the CAC 40 was hit hard by the sluggishness of the Chinese economy, China being an important market for the sector (with around 30% of revenues). This particularly weighed on LVMH and L’Oréal, two of the three largest market capitalizations in the CAC 40, both of which reported lower-than-expected growth in the third quarter.

More particularly, in “Northern Asia”, L’Oréal recorded a drop in like-for-like revenues of 6.5%, when the consensus expected an increase of 2.2%. At LVMH, “Asia excluding Japan” saw a plunge of 16% on these same bases.

Of the four “KOHL” (Kering, L’Oréal, Hermès, LVMH), only Hermès displays a positive performance for the year 2024 (+6.5%). LVMH lost 20.1%, L’Oréal 27.39% and Kering 44.2%. However, these four values ​​represent, together, 31% of the market capitalization of the CAC 40.

Luxury players have also, more recently, been penalized both by China’s disappointing recovery measures and by fears linked to customs surcharges wanted by Donald Trump.

“The potential for trade tensions between the United States and China could further weaken Chinese consumer sentiment and complicate China’s macroeconomic recovery, which would pose a risk to the recovery of the luxury sector,” said UBS, last week.

“Customs taxes in the United States, desired by Donald Trump, risk putting margins under pressure, if luxury groups do not pass these surcharges on to consumers,” explained a sector analyst to News Bulletin 247.

Many disappointments

This bad dynamic is not just limited to luxury. The last season of results, on the CAC 40, turned out to be poor overall, with several groups which were forced to lower their objectives for the current year such as Dassault Systèmes, Capgemini and Eurofins.

STMicroelectronics has had to revise its outlook for 2024 several times and has fallen 46.6% since the start of the year. Stellantis, for its part, is experiencing an atrocious year in 2024 on the stock market (-40%). The group led by Carlos Tavares is struggling to reduce its significant inventory levels in North America and is losing market share. This resulted in a drop in its volumes and the company had to issue a heavy profit warning at the end of September. Airbus published a profit warning in June.

In summary, the disappointments were numerous and the good surprises (Essilorluxottica, Renault, Société Générale) rarer.

Is this underperformance of the CAC 40 compared to other indices likely to continue? Alexandre Baradez judges in any case that the trough has probably been passed. “Many negative aspects have already been integrated. A large part of the black bread has been eaten on the CAC 40 and many heavyweights have already corrected. For this to continue to decline there would need to be more bad news on China”, he judges. “If the CAC 40 were to fall further, it would probably do so in concert with the other indices and not in isolation,” believes the market analyst.