Strategists at Barclays, a London-based bank, said that German blue-chip stocks show more promise compared to their French counterparts.
The experts of the mentioned bank noted that France is currently characterized by weak long-term fiscal and growth fundamentals. They also drew special attention to the risk that the so-called bond vigilantes could sweep into this country. This term refers to investors who protest against monetary or fiscal policies that, in their opinion, are erroneous. As part of the practical implementation of their disagreement, they begin to sell bonds. Against the background of the corresponding actions, the cost of borrowing for the government is increasing.
At the same time, it is worth noting that the German and French economic systems are currently experiencing not the best period in the history of their existence. Berlin continues to take measures aimed at countering the downturn in the manufacturing sector. The mentioned downturn has made the German economy a kind of outsider. Berlin is also facing political problems, largely related to economic factors. Amid disputes over the budget and long-term fiscal strategy, the German government faced collapse. At the same time, the local debt and deficit position is in better shape compared to the French situation.
The cost of borrowing in France in the current year exceeded the same figure in Germany. Instability in the French political space has become a kind of nervousness factor for the markets.
There is currently a risk that Paris could face years of political uncertainty. In this context, attention should be paid to the divide in the French parliament, where no party or faction has a majority. Investors are also concerned about the potential likelihood that Paris can reduce its hefty debt pile and avoid credit rating downgrades.
Barclays strategists said a compromise on the French budget is still possible. At the same time, they noted that there is no easy solution to the political impasse, while long-term fiscal and growth fundamentals remain poor.
Barclays strategists also noted that they maintain their preference for Frankfurt’s DAX stock index over Paris’s CAC 40. Moreover, these experts stated that medium-term risk asymmetry was not great for French markets.
As we have reported earlier, Barclays Raises 2025 S&P 500 Index Forecast.
