Investors have piled more than $1.3 billion into ETFs tracking French companies since March, hoping for the country’s newest and youngest President to cut taxes.
Emmanuel Macron was elected as an antipopulist and glamorous candidate who vowed to get the former “sick country of Europe” moving again, out of the quagmire of red tape and high taxes. But Macron’s approval ratings have already tanked from around 55% in July to just 35% in August.
French strikes could hinder progress
Against this backdrop, Macron will pursue his probusiness agenda, and to lower corporate tax for domestic companies from 33% to 25%, lower domestic spending and make it easier for companies to hire and fire, which should boost large caps.
French stocks are up 6.8% year to date and large caps, which will likely be given a boost from declining labour costs, have risen just slightly less at 6.5%.
Macron will release his corporate reforms this week. Despite his majority in Parliament, his actions are likely to trigger action from the labour unions whose strikes have the power to stall activity in the country. Macron’s former opponent in the election, Jean-Luc Melenchon, a left-wing politician, has also threatened to call for strike action.
Investors see positive economic indicators
But Macron has insisted that his agenda will help to bring about globalisation – something his predecessor Francois Hollande failed due to strict labour codes. Now, unemployment is at a five-year low of 9.5%, and the economy grew 1.8% year-on-year in July, compared to 1.1% the previous month.
There are several ETF options for investors. The most popular is the $639 million iShares MSCI France ETF (EWQ) which focuses on mid and large caps. It costs 0.48% and has gained 21.79% in USD terms since 1 January, and its top three sectors are industrials – industrial confidence in the economy rose to 111 in August from 108 the previous month – consumer discretionary stocks and financials. Investors have piled in almost $290 million year to date.
Another option is the more diversified iShares MSCI EMU ETF (EZU) which tracks a selection of mid and large caps across European countries. It has a whopping $13 billion in assets and also costs 0.48%.
More than 32% of the exposure is to France, followed by Germany at 28% and the Netherlands at around 11%. EZU is up 22% year to date in USD terms.
