Our medium-term view of France's stock index (ETF: EWQ) is still constructive.
With economic data highlighting more clearly that the French economy is not falling back into a recession, we expect the current mispricing to decline with price moving higher. It appears that the market has worried too much about the road ahead. Because of reasonable growth data, improving readings from corporate earnings, and ongoing healing in the consumer sector, our view on France's market index is still positive, even in the longer term.
Our constructive view reflects the fact that markets have been in a very "defensive" mode since last year and that our forecasts paint a more encouraging picture on a number of different dimensions. In the labor market, there is already some good news. High-frequency indicators, such as the job numbers in the manufacturing sector point to some improvement in the immediate future. Assuming that another recession is avoided, the employment situation should continue to normalize, albeit at a very modest rate. And if there is a contraction, it would probably be modest since there is little excess to be cut.
Although the risks to the longer-term outlook still exist owing to the ongoing drag of the credit markets, we expect further stabilization in the economy and slow improvement in employment. As we move through our forecast horizon this year, and certainly next year, the risk-reward for non-cyclical assets (such as cash or bonds) and defensive strategies becomes less favorable. Based on our analysis, our findings here are bullish for France's stock market, and we plan to stick with this positive view.
With economic data highlighting more clearly that the French economy is not falling back into a recession, we expect the current mispricing to decline with price moving higher. It appears that the market has worried too much about the road ahead. Because of reasonable growth data, improving readings from corporate earnings, and ongoing healing in the consumer sector, our view on France's market index is still positive, even in the longer term.
Our constructive view reflects the fact that markets have been in a very "defensive" mode since last year and that our forecasts paint a more encouraging picture on a number of different dimensions. In the labor market, there is already some good news. High-frequency indicators, such as the job numbers in the manufacturing sector point to some improvement in the immediate future. Assuming that another recession is avoided, the employment situation should continue to normalize, albeit at a very modest rate. And if there is a contraction, it would probably be modest since there is little excess to be cut.
Although the risks to the longer-term outlook still exist owing to the ongoing drag of the credit markets, we expect further stabilization in the economy and slow improvement in employment. As we move through our forecast horizon this year, and certainly next year, the risk-reward for non-cyclical assets (such as cash or bonds) and defensive strategies becomes less favorable. Based on our analysis, our findings here are bullish for France's stock market, and we plan to stick with this positive view.
