By Craig Mellow
French politics are a hot mess. Emmanuel Macron's fourth prime minister in two years finally stabilized the government this week, at the cost of "suspending" Macron's landmark achievement, raising France's budget-busting pension age.
French stocks are doing much better. The iShares MSCI France exchange-traded fund has jumped by a quarter this year, slightly lagging behind broader European equities. Stripping out gains from the euro, the CAC 40 index is up 9%.
France's economy keeps plodding along despite a meltdown at the top. Growth estimates for 2025 are shifting upward toward 1%. Unemployment is holding near record lows at 7.5%, thanks substantially to Macron's labor market reforms.
More to the point, France is an underappreciated export powerhouse whose listed companies reap three-quarters of their sales beyond its borders, says Irene Lauro, European economist at Schroders. Of the top 10 names in the index, only No. 10, leading bank BNP Paribas, could be considered domestic-facing.
French industry has been catching up to Germany's since Russia invaded Ukraine in 2022, says Michael Field, European equity strategist at Morningstar. Or rather, Germany suffered more from the cutoff of Russian gas and a resulting jump in power prices. France draws 70% of its electricity from nuclear power. The German economy is now the most exposed in Europe to President Donald Trump's U.S. tariffs, Lauro says -- along with Ireland, whose burgeoning pharmaceutical sector looks vulnerable.
France is surprisingly strong in military technology, which is on a roll as European defense budgets expand. Airbus and lesser-known aviation contractor Safran are its third- and fourth-biggest companies by market cap. "France is deeply integrated into the European defense sector," notes Mathieu Savary, chief strategist for Europe at BCA Research.
France Inc. isn't totally immune to chaos in the National Assembly. Bond vigilantes, spooked by the government's 5.5%-of-gross-domestic-product deficit, could raise corporate borrowing costs. A revenue-strapped finance ministry slapped a 41% surcharge onto large corporations' tax bill this year. "Investors do think about zip code," says Sebastian Schrott, portfolio manager for European equities at T. Rowe Price. "We are slightly underweight France."
On the other hand, zip code discrimination can leave good French companies undervalued. BNP Paribas is one example, Morningstar's Field thinks. The stock is lagging behind European peers -- gaining 31% this year against an industry average of 44% -- despite a broad footprint across the continent and lucrative investment banking franchise.
Schrott sees value in oil supermajor TotalEnergies, which trades at a forward price/earnings ratio around 10, compared with 15 for U.S.-domiciled rivals Exxon Mobil and Chevron. "This is a very cheap stock because it's listed in France," he says.
The biggest question mark, equities-wise, hangs over France's fabled luxury goods and cosmetics makers, which have suffered while heavier industry and finance surged. Luxury supermajor LVMH Moët Hennessy Louis Vuitton is still the country's top stock. But it has lost 30% from a peak 18 months ago, enduring a one-two punch of shrinking Chinese demand and escalating U.S. tariffs.
LVMH should bounce back, eventually, Field says. "We see the downturn in luxury as cyclical, not structural," he says.
BCA's Savary gives similarly qualified support. "A lot depends on China, where we are anticipating more moves to help the consumer," he explains. "Any weakness in the luxury names looks like a buying opportunity."
The same might be said for French stocks in general. Dysfunction is in the government, not the companies.
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(END) Dow Jones Newswires
October 17, 2025 21:30 ET (01:30 GMT)
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