The French market is offering the seemingly irresistible combination of rising GDP growth and a broa...
The French market is offering the seemingly irresistible combination of rising GDP growth and a broad range of benefiting market sectors. Both Hill Samuel and HSBC are bullish on the prospects for the country.
Last year GDP grew by 2.7% compared to the European average growth rate of 2.1% and for the 52 weeks to 24 January the CAC 40 index rose by 41.6%, in local currency terms. Adrian Farthing, head of Europe at Hill Samuel Asset Management, believes this year GDP will grow by between 3.5% to 4%. In 2001 the consensus expectation is for a slowdown in growth but Farthing expects it to stay at least at the same level as in 2000.
As with other fund management groups Hill Samuel is favouring telecom stocks due to the continual growth in the sector. Farthing says: "We prefer Vivendi, the utilities conglomerate, over France Telecom. Vivendi has a more diverse range of interests in particular cable TV and media companies."
HSBC is also bullish on the French market pointing to high levels of consumption and the range of exporting companies benefiting from value of the euro. Chris Rice, senior fund manager at HSBC, believes corporate earnings growth will be around 20% this year. On the downside, although inflation is currently below 1.5%, it is likely to rise. With growth expected across Europe the ECB will increase interest rates, according to Rice.
To capture this growth in the economy and corporate earnings Rice has exposure to advertising companies. He says: "The sector is enjoying its highest level of growth since the 1980s. As well as being helped by the state of the economy the sector is receiving structural demand from internet companies. We favour Publicis which has a good management team and an aggressive acquisitions policy."
Among French technology companies Rice favours FI system, a website agency which provides e-commerce solutions for corporate France. He says: "We bought the company three months ago when it was trading at a 40% discount to the sector it has now recovered to trade on par."
Investec Guinness Flight favours Lagadere in the French media sector. Fund manager David Potts believes the company, which publishes women's magazines, is attractive to internet content providers. The M&A and consolidation activity which were a major feature in Europe in 1999 should continue this year, according to Potts. Last year the French experienced their fair share of mergers and acquisitions, such as between BNP and Paribas.
Although he is bullish over the long term future of French financials with the anticipated expansion of the pensions market over the shorter term he has a neutral weighting in the sector.
He says: "At the moment financials look fully valued with the market anticipating more M&A activity this year."
In general Rice believes the French market is looking expensive with managers having to pay for growth. Last Monday the CAC-40 index had a P/E ratio 31.7 times. He says: "There is no outstanding value in the large area if you want some value you have to look at mid and small-cap companies."
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