Avoid banks and telecoms. How strategists advise to protect themselves from the crisis in France

After the unexpected resignation of French Prime Minister Sebastien Lecornu, who held the post for only 27 days, investors are wary of the political crisis in the country. Analysts note that this may cool interest in companies focused on the domestic market. The situation is aggravated by the difficult budget situation, which forces investors to choose other European destinations.

Political instability is firmly embedded in France's investment landscape and could reduce interest in companies focused on the country's domestic market, CNBC writes.

- "The one area I would probably avoid is domestic France. The country is facing a huge budget deficit and eventually the market will force the authorities to take tougher measures to reduce it," the channel quoted Wellington Management macroeconomic strategist Nick Wilensiek as saying. He believes that to reduce the deficit, the government will first of all go to increase taxes, which will hit hardest French banks, infrastructure companies and telecommunications operators. Wellington Management strategist advised investors to pay attention to European markets outside France, where, in his opinion, "now there are much more attractive opportunities".

- Kevin Toze, a member of the investment committee at French asset management firm Carmignac, said continued instability is likely to reinforce the mixed-speed nature of economic growth in Europe. "France is being held back by political uncertainty, while Germany is being supported by a stimulus program and southern European countries are getting a boost from EU funds," he said.

- JPMorgan strategist Mislav Matejka said that although the resignation of the Prime Minister in France may put pressure on the market, he sees a possible decline as a reason to buy, as he believes that this pressure will be temporary, reports Reuters. The investment bank took a bullish stance on eurozone equities as a whole, upgrading them from "neutral" to "buy" (overweight). After several months of weak performance, securities in the region have become more attractive, Matejka said.

- After several changes of prime ministers, market participants are "no longer surprised by the political stalemate and seem resigned to the fact that the situation will remain frozen until the next presidential election" in 2027, predicts Mabrouk Shetuan, head of global market strategy at Natixis Investment Management. "In other words, a sense of deja vu reigns and therefore there is no additional reason to panic."

On Tuesday, October 7, the French CAC 40 index grew slightly during the day, but at the end of the trading day remained virtually unchanged, nevertheless managing to stay in the "green" zone. The benchmark reacted to the news about the resignation of the Prime Minister on Monday with a sharp fall.

A number of French stocks recovered some of their losses on Tuesday, CNBC reports . The leaders of growth were luxury brands: the owner of Gucci - Kering - ended the session with a growth of 5.8%, and the giant of the luxury sector LVMH rose in price by 3.6%. Quotes car manufacturer Renault jumped by 2.7%. Shares of some French banks are still in the negative: securities BNP Paribas fell in price by 1.2%, Societe Generale - by 0.7%, Credit Agricole - by 0.2%. Shares of telecom operator Orange rose by 0.2%.

Goldman Sachs strategists, including Simon Freysene, believe some of the near-term political risks are already reflected in prices after a bond sell-off following the prime minister's resignation on Monday, Bloombergwrites, sending the risk premium on 10-year French bonds versus German bunds to its highest level since the start of the year.

Citigroup is more skeptical and believes that rising risks are only beginning to be reflected in spreads. Strategist Aman Bansal estimates the current "political premium" at 14 basis points, up from 20 points in August - but it could jump again in the event of a snap election.

Goldman Sachs maintains its year-end forecast for the yield spread between French and German 10-year bonds at 70 basis points, noting, however, "upside risks". This assumes a possible recovery in French bonds in the coming months - the spread is now around 86 basis points. Freysenet said this forecast could come under pressure if economic growth worsens or fiscal performance weakens further, Bloomberg reports.

If an early election is called, the spread will reach 100 basis points, Carmignac's Toze predicts. The last time this happened was in 2012.

This article was AI-translated and verified by a human editor