French stocks climbed, ready for their first record close since the dot-com era, aided by soaring demand for luxury goods and a rebound in energy and banking stocks.
The benchmark CAC 40 index rose 0.5% to 6,924.01 at 11:58 am in Paris on Tuesday, exceeding the peak set in September 2000. LVMH, Hermes International and Kering SA account for around a quarter of the 25% increase of the CAC in 2021, while the surge in oil prices boosted TotalEnergies SE’s energy value, becoming the second largest contributor after LVMH. Banking stocks BNP Paribas SA and Société Générale SA, as well as cosmetics maker L’Oréal SA and electrical equipment company Schneider Electric SE also jumped this year.
The rebirth of the CAC was long overdue. It is one of the best indices among the major Western European indices this year, but it took longer than the German and Swiss benchmarks to recover its record. The broader Stoxx Europe 600 index also hit a record high this year.
Momentum looks good and the CAC 40 is set to rise further, alongside other stock indexes, as tensions in the supply chain ease, Martin Moeller, Co-Head of Swiss & Global Portfolio Management at UBS in Geneva .
“We are constructive for next year,” he said. “France offers a good return on cash flow investment for a few companies, which we love and will benefit from as companies invest in more diverse supply chains, thereby contributing to GDP growth. “
The continuation of the rally in French stocks depends in part on the luxury industry. LVMH, owner of the Louis Vuitton and Moët brands, and its luxury competitors Hermès and Kering represent nearly a quarter of the cumulative weighting of the CAC.
According to Swetha Ramachandran, who manages GAM’s Luxury Brands Equity Fund, analysts’ earnings estimates for luxury companies are on the rise again, after a “temporary hiatus” this summer, making stocks cheaper even though they are. have reached records. The profitability of the sector is better than before the pandemic, with “positive spending intentions among consumers in key regions ahead of the crucial holiday spending period,” for example in China, she said.
Supply chain issues are also “less of a problem for European luxury firms than others due to the relative simplicity of sourcing and manufacturing mainly in France and Italy,” adds Ramachandran.
The next milestone for the CAC is the 7,000 mark – representing an additional gain of around 1.1% – which it could exceed by the end of the year, predicts Alexandre Baradez, chief market analyst at IG France. He sees the benchmark benefit more from demand for cyclical stocks during the recovery from the pandemic.
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