Forget the FTSE; CAC Is the One to Watch This Year, BNP Says

  • Outlook for French stocks positive, despite election risk
  • Favors CAC 40 over FTSE 100 on sectors, fundamentals

If 2016 went to the English, 2017 could be the year of the French.

That’s the view of BNP Paribas SA, which favors France’s CAC 40 stock index over the U.K.’s FTSE 100, even as uncertainty before the French election weighs on the nation’s markets. The London-based index gained 14 percent last year, compared with the 4.9 percent advance of the CAC 40.

“There are several good fundamental reasons to remain positive on the outlook for French equities,” BNP’s Edmund Shing, the global head of equity and derivative strategy at BNP, said in a note to clients this week. “French manufacturing PMI has hit a multi-year high, services remain equally buoyant and consumer confidence is at its highest since late 2007.”

Here’s why investors should consider the CAC over the FTSE, according to Shing:

Energy and Mining

The FTSE 100 has extended last year’s gain in recent days, enjoying a record streak of 12 successive positive sessions. But when stripped of its mining and energy companies, it is down 3 percent over the past 12 months, and remains well below levels seen before the Brexit vote. This makes the U.K. benchmark index particularly vulnerable to any pull-back in commodity-related shares.

Weaker Euro

While energy and materials stocks make up over 30 percent of the FTSE, the CAC is weighted toward consumer and industrial companies with a global reach. These may benefit as the euro weakens against the dollar, making their exports more competitive. BNP notes sales growth is starting to pick up for French companies and says the outlook for their profit margins is also improving.

Common-Currency Performance

Stripping out the effect of foreign-exchange fluctuations -- the CAC 40 has consistently outperformed the FTSE since the beginning of 2015, a trend BNP predicts will continue.

    Before it's here, it's on the Bloomberg Terminal.