Thursday, April 13, the CAC 40 broke its third daily record in a row to register at 7,480 points. How can this success be explained when France is in the midst of a social crisis?
What is the photo of the moment? In the news, it is indeed that of the demonstrations against the pension reform, that of purchasing power at half mast, etc. But, nevertheless, the place of Paris is composed mainly of values directly linked to world economic growth. The sectors and companies that benefit from it are luxury (LVMH, L’Oréal, Hermès, Kering), defense (Dassault, Thales) and tourism (hotelier Accor, Cie des Alpes, etc.). The Stock Exchange therefore reacts essentially to trends external to Franco-French news.
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Reaction to External Trends
Luxury is, in fact, driven by the Chinese market, which is seeing the restrictions linked to the latest wave of Covid-19 finally lifted. The luxury industry weighs 25% in the composition of the CAC 40, the flagship index of the Paris Stock Exchange. In tourism, despite the tense context, travel is picking up again, demand is strong, all of which benefits businesses in the hotel, leisure and transport sectors. Finally, defense companies? This is an observation that can make you jump, but, in fact, with geopolitical tensions and especially at the moment the war in Ukraine, it is the race for rearmament. Military budgets are on the rise everywhere and hardware manufacturers are taking advantage of it.
A lasting trend?
At the moment, stock market optimism is such that operators have obviously already forgotten the upheavals in the banking sector with the bankruptcy of the SVB bank in the United States and the heavy setbacks of Credit Suisse in Europe. Important element: stock market prices today represent about fifteen times the future profits of the companies concerned. That is to say, the profits they should make within a year. Moreover, their market valuation represents between one and two times their book value, which is a rather reassuring cushion for investors.
A downside correction is bound to happen sooner or later. When the markets go up, there is always a moment when the financial operators resume their profits and, suddenly, the markets fall. The variations are sometimes significant, but the ups and downs are logical. In any case, beware of excessive optimism.