As 2024 draws to a close, the Paris CAC 40 index finds itself in a precarious position, showing a year-on-year decline of 3%. This could make it the only major global stock index to finish the year in negative territorySuch underperformance starkly contrasts with the European benchmark, the Stoxx Europe 600, which has seen an increase of 6%, and the German DAX index that enjoyed a robust recovery with a rise of 18.7%. The underlying reasons for France’s faltering stock market are complex and multifaceted, stemming from domestic political turbulence, persistent budgetary constraints, and a string of external pressures impacting traditional industry sectors like luxury goods and automotive.

The instability in France's political landscape has significantly contributed to this dismal stateOver the past year, the country has experienced considerable leadership changes, with four different prime ministers taking officeThe current Prime Minister, Michel Barnier, has attempted to stabilize the fiscal deficit through various financial policies, but with little successConsequently, investor confidence has soured, marked by a notable increase in the yield on French 10-year government bonds skyrocketing above 3% — a high that hasn't been seen since the eurozone debt crisisThese elevated financing costs are not only straining businesses but are also dragging down the overall market sentiment.

On December 4, the French National Assembly voted on a motion of no confidence against the government, complicating matters further and raising questions regarding potential cabinet shufflesThis political maneuvering may substantially impact the economic forecast for France, as suggested by Goldman Sachs strategist Alexander StottIn light of the vote, he noted, "While Barnier has compromised on certain policies, like pausing the electricity tax hike, he stands firm on inflation-indexed pensions." He further warned that, without an agreement on the budget, the government may be compelled to invoke emergency powers, potentially pushing the deficit to alarming levels of between 5.5% and 6% of GDP.

This unease was further compounded when credit rating agency Moody's downgraded France’s credit rating on December 14, citing a "significant deterioration" in the economic outlook

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Roland Carole, head of European equity strategy at Societe Generale, commented on the current market context, stating, "The myriad complex factors at play in today's market have left investors shying away from French stocks at unprecedented levels." The looming threat of stricter trade policies from the United States on imported goods has added to the pressure, straining French export businesses and leading to a more conservative outlook on future profitability amid global supply chain uncertainties.

Meanwhile, traditional sectors that form the backbone of the French economy are facing their own set of challengesThe luxury goods industry, which significantly supports the CAC 40 index, has struggled throughout 2024. Major conglomerates, such as LVMH and Kering, witnessed declines in stock prices of 12% and 40% respectively over the yearDespite stable demand from European and North American markets, the overall slowdown in global economic growth and weak demand in key export markets have cast a shadow over the industry’s futureThe post-pandemic recovery in consumption seems fleeting, and the growth momentum that once buoyed the luxury sector appears to be diminishing.

Analysts from Barclays described 2024 as heralding a "painful year for the luxury goods sector," projecting a mere 3% growth rate for 2025. The double-edged sword of increasing competition in the electric vehicle market and a general lull in global economic vitality has put traditional car makers, essential to the French economy, under persistent financial pressureStellantis, a key player in the automotive industry, saw a staggering 41% plunge in stock value, illustrating the struggles faced by established car manufacturers amid this industry transformation.

With the domestic market underperforming, French firms are now looking beyond borders for reliefFor instance, pay-TV operator Canal+ opted to list on the London Stock Exchange, only to see its stock price plummet nearly 30% since trading began

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