In Bank of America's latest check-in with regional fund managers, carried out between Oct. 2 and Oct. 8, 56% said they would tilt their portfolios to an underweight stance on France over the next 12 months. That made France the least favored market in Europe. A client note by BofA's Paulina Strzelinska and Sebastian Raedler reported that a net 63% of respondents cited "French fiscal sustainability and the 2027 election cycle as the largest political risk" to European markets in the coming year.
French equities and government debt have been sold off in recent weeks, pushing the country's borrowing costs to peaks last seen nearly 25 years ago. The CAC 40 is down 3.8% for the year, while the broader European benchmark is up 7.8%. The fiscal backdrop has been strained further by youth-led nationwide protests demanding €10 billion ($11.2 billion) to address overcrowded classrooms and aging school facilities.
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Prime Minister Sébastien Lecornu is seeking parliamentary approval to narrow the budget deficit to 5% of output by 2027 after falling short of that goal this year. The fiscal watchdog labeled the budget plan "optimistic." Investors are also looking ahead to next year's presidential race, where recent polling points to a potential runoff between far-right front-runner Marine Le Pen and far-left rival Jean-Luc Mélenchon.
Contagion worries are in the air, with Italian and Greek yield spreads moving wider and the euro slipping against peers. Even so, Raedler struck a more constructive tone on French stocks last week, lifting them to overweight and citing that the OAT versus Bund yield gap had limited room to extend. By 12:41 p.m. in Paris, the CAC 40 was up 0.2%, trailing the Stoxx Europe 600's 0.4% gain.
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