French stocks bolted from the gates this year, briefly hitting record highs on Thursday. France’s blue-chip index, the CAC-40, is up nearly 14% in 2023.
Why it matters: The performance of the Paris bourse reflects some of the surprising dynamics at play in the world economy.
- Both the European and American economies have proved more resilient to the Russian energy shock than many expected, and China is now pushing for a successful reopening from COVID — all of which redounds to corporate France.
For example: Luxury conglomerate LVMH Moët Hennessy Louis Vuitton — the largest stock in the CAC-40 — will benefit from the strength of the U.S., its largest market, as well as the reopening in China, also a key growth market. Its shares are up 20% so far this year.
- The weak euro also makes its products more competitive and juices its profits when they’re converted back to its local currency.
Worth noting: The CAC-40 didn’t have as much ground to make up as the U.S. benchmark S&P 500 does. The French index dropped just 9.5% in 2022, compared to the S&P’s 19.4% drop.
Between the lines: European stocks have also looked relatively cheap this year compared to the U.S., analysts say, providing extra oomph to this year’s rally.
- Even after its rally to start the year, the CAC-40 forward price-to-earnings ratio is still under 14, compared to more than 18 for the S&P 500.