French stocks heading for worst annual run in years

French stocks could potentially be on track to experience their worst yearly performance since the global financial crisis of 2007-2008. 

This has mainly been exacerbated by increased investor anxieties about the political situation of the country, along with the possibility of tariffs, in case the EU-China trade war heats up, or tensions between the EU and the US worsen. 

The ongoing cost of living crisis seen in many parts of Europe, as well as France, along with high interest rates and soaring inflation has also contributed to the French economy seeing relatively subdued growth compared to some of its European counterparts. 

This has gone a long way in discouraging both domestic and foreign investors from investing in French stocks. A rising budget deficit and the snap elections seen earlier this year have also contributed to this. 

The CAC 40 index has already fallen 3% year-to-date, although it did gain 2.78% this month, as well as 1.25% in the past week. 

In comparison, other major European indexes such as the Stoxx 50 surged 7.96% year-to-date, while the Stoxx 600 index jumped 5.42% so far this year. The German DAX index has also grown 18.46% year-to-date. 

Why have French stocks struggled so much this year?

One of the major reasons for the CAC 40’s lacklustre performance is because of the global luxury sector struggling for the majority of 2024, following short-lived gains at the beginning of the year. 

Since luxury companies form a large part of the CAC 40, this sluggish performance has significantly impacted the index, especially through companies such as LVMH and Kering.

LVMH has fallen 13.83% this year, whereas Kering plunged 45.90%. However, another major French company, Hermès, has bucked this trend by advancing 20.42% year-to-date. 

Falling interest from vital markets such as China have also strongly affected these luxury companies. This is especially after the boom in demand seen during the pandemic for luxury goods such as designer accessories and premium alcohol. 

Chinese customers are now pulling back on spending, following increasing fears of a deep economic turndown. Although the Chinese government has already revealed upcoming stimulus plans to boost market and economic confidence, it can take quite a while for these measures to be reflected in consumer prices, demand and activity. 

French auto companies such as Stellantis and Renault have also faced increased competition this year from Chinese automakers, especially electric vehicle (EV) makers such as SAIC, Geely and BYD. 

Although the EU has tried to curb this by imposing tariffs on Chinese EVs imported into the bloc, several of these manufacturers have now turned to hybrid vehicles, which are not currently covered under the existing tariffs, and may continue to provide stiff competition to domestic French and European automakers. 

These tariffs by the EU have also led to some retaliation from the Chinese government, in the form of anti-dumping probes into EU brandy, which has especially hit French brandy manufacturers such as Rémy Martin and Hennessy.