Last Friday, ratings agency Standard & Poor’s cut France’s sovereign credit rating to AA, its second downgrade in under two years. The country has also seen its credit rating downgraded by Moody’s and Fitch in recent years.
S&P said the downgrade reflects its view the French government’s current approach to budgetary and structural reforms to taxation, as well as to product, services and labour markets, is unlikely to substantially raise France’s medium-term growth prospects.
A quick search on Money Management’s fund statistics tool shows there is just one France-specific fund, the Luxembourg-domiciled Sicav $215m Fidelity France fund, managed by Vincent Durel, which invests principally in French equity securities. Based on an initial £1,000 investment, the fund returned £1,211 over three years as at 8 November.
Chart 1 shows the CAC 40 over the past three years as at 7 November compared to the UK’s FTSE 100 index. While both indices follow the same trend, the FTSE 100 significantly outperformed the CAC 40 over the past two years. The CAC had a difficult 2012 and has struggled to rebound, although importantly, markets failed to react too significantly to the ratings downgrade in January 2012.
The Chart also points to where President François Hollande took over office from Nicolas Sarkozy in 2012. The market fell briefly once Mr Hollande took over but has been on a relatively steady increase since.
Another rate that has been on an steady upward trajectory over the past five years is unemployment levels. S&P partly blamed its downgrade to high unemployment levels in France.
Despite the downgrade, France remains on a ‘stable’ credit outlook from S&P, although Moody’s rates it as ‘negative’. Although having higher ratings from both S&P and Moody’s, Germany holds the same outlooks from the agencies. In contrast, the UK has a ‘negative’ credit outlook by S&P and ‘stable’ from Moody’s.