(Bloomberg) —
France’s benchmark CAC 40 Index posted its first record close since the dot-com era, helped by booming demand for luxury goods, and a rebound in energy and banking stocks.
The CAC 40 rose 0.5% to 6,927.03 by the close in Paris on Tuesday, surpassing the peak set in September 2000. Luxury stocks LVMH, Hermes International and Kering SA account for about a quarter of the CAC’s 25% advance in 2021, while a surge in oil prices boosted energy stock TotalEnergies SE, making it the second-largest contributor overall after LVMH.
Banking stocks BNP Paribas SA and Societe Generale SA, as well as cosmetics maker L’Oreal SA and electrical-equipment company Schneider Electric SE, also jumped this year.
The CAC’s renaissance has been a long time coming. It’s one of the best performers among major western European indexes this year, but it has taken longer than German and Swiss benchmarks to claw back its record. The broader Stoxx Europe 600 Index also reached a record high this year.
Momentum looks good and the CAC 40 is likely to climb some more, alongside other equity indexes, as supply-chain tensions ease, Martin Moeller, co-head of Swiss & global portfolio management at Union Bancaire Privee in Geneva.
“We are constructive for next year,” he says. “France offers a few companies with good Cash-Flow Return on Investment, which we like, and will benefit as businesses invest into more diversified supply-chains, helping GDP growth.”
The CAC 40 stocks Hermes, best known for its Birkin and Kelly handbags, the eyewear giant EssilorLuxottica SA and the distiller Pernod Ricard SA all hit fresh record highs today.
Whether the rally in French stocks has much further to go depends in part on the luxury industry. LVMH, the owner of the Louis Vuitton and Moet brands, Hermes and Kering, which owns Gucci, account for almost a quarter of the CAC’s combined weighting.
Analysts’ earnings estimates for luxury companies are once again rising, after a “temporary hiatus” this summer, making the stocks cheaper even as they’ve climbed to records, according to Swetha Ramachandran, who manages GAM’s Luxury Brands Equity Fund. Profitability for the sector is better than before the pandemic, with “positive spending intentions among consumers in key regions ahead of the crucial holiday spending season,” for example China, she said.
Supply-chain concerns also are “less an issue for European luxury companies than others due to relative simplicity of sourcing and manufacturing in mainly France and Italy,” adds Ramachandran.
French stocks will remain in focus in the months to come as President Emmanuel Macron seeks re-election in April next year.
The next milestone for the CAC is the 7,000 mark — representing a further gain of about 1.1% — which it may surpass by year end, predicts Alexandre Baradez, chief market analyst at IG France. He sees the benchmark benefiting further from demand for cyclical stocks in the recovery from the pandemic.
(Corrects company name in 5th paragraph in story published Tuesday)
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