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Will France be the next market downgrade?

As most of you have seen in recent days, world stock markets have been manic depressive, going through ups and mostly downs due in large part to widespread worries that the US debt downgrade from S&P and the fiscal debt in countries such as Greece, Italy, and Spain will result in worse market conditions for investors.

My other sovereign’s an AAA (The Economist)

There was a market backlash against French debt and enormous market losses for French banks like Société Générale, BNP Paribas and Crédit Agricole (exposed to Greek debt and other European sovereign debt) that is making investors increasingly anxious about France’s debt. Indeed as The Economist writes:

“France’s debt stood at 82% of GDP last year, from 64% in 2007. This is one of the highest of any AAA-rated country. That, investors fear, means it could be the next target for a downgrade, especially if already anaemic economic growth falters further. The extra yield required by investors to hold French debt instead of German Bunds jumped to almost triple the average level of 2010 while the cost of insuring against a default by France reached new highs during the week.”

Moreover, as The Telegraph writes, “French banks have €410bn (£360bn) of exposure to Italy alone according to the Bank for International Settlements. The twin crises in France and Italy are now intimately linked and appear to be feeding on each other.”

How will France proceed? According to a great, in-depth Bloomberg interview (embedding not allowed) with Philippe D’Arvisenet, global chief economist at BNP Paribas SA, France initiating austerity measures is “inescapable”. They go on to discuss France’s exposure to European sovereign debt, reform plans to cut spending but keep tax rates at current levels (though with elimination of some 500 tax loopholes).

The same Telegraph article states, “French president Nicolas Sarkozy has ordered a “general mobilization” to slash France’s budget deficit in a frantic effort to safeguard the country’s AAA rating and head off a downgrade by Standard & Poor’s.”

We will see how this plays out…for now, the markets will likely continue to be manic depressive. Hang on tight!

I leave you with this passage from the Telegraph article:

“…Marchel Alexandrivich from Jefferies Fixed Income said investors are worried that the latest contagion to France could bring the eurozone’s bubbling problems to a head in a dramatic fashion.

“If France is dragged into the problem, then we will hit crisis point. They will either have to move to a full-blown eurobond — and German politicians are set against that — or face a break-up. There is a significant chance that the euro will no longer exist in its current form within twelve months,” he said.
President Sarkozy said France would include a “golden rule” in its constitution to restore fiscal probity, adding that the fiscal targets for 2011 and 2012 were “untouchable”.

The new budget measures will be introduced on August 24 and are expected to include the closure of 500 tax loopholes.

The IMF said France has the highest debt ratio of any AAA state this year at 85pc of GDP and may have to tighten further next year. Like the US, France has also built up huge pension debt and contingent liabilities.”

French venture capital at record levels

According to the the March 22 edition of French financial daily La Tribune, venture capital in France in 2010 reached its highest levels since 2000. For those of you who cannot read the article (due to subscription restrictions), I have summed it up in English below.

An interesting linguistic note that reveals a lot about cultural differences is the expression in French for “venture capital”: capital-risque, or “risk capital”. So whereas the risk-taking “Anglo-Saxon” cultures positively think of investing in businesses as “ventures”, the actual French term emphasizes the traditional risk-averse culture of France (that is gradually evolving, as the article illustrates).

Another example of this difference is that more Americans and British invest in stocks for their pensions whereas it is less of a natural option for French workers. But this too is changing.

I have some venture capital links on my business in France page.

Do you have any views of venture capital and investments in France?

“Le capital-risque en France retrouve des niveaux record”

Venture capital funds invested about €1.05 billion in 2010 (compared to €910 million in 2009). This is the highest amount since 2000, when VC reached €1.14 billion.

Investment over the past six semesters (notice the dip 2nd half of 2009)

2008: €470 mil (1st semester), €556 mil (2nd semester)
2009: €503 mil (1st semester), €407 mil (2nd semester)
2010: €515 mil (1st semester), €532 mil (2nd semester)

Most capital came from local investment funds, or FIP (Fonds d’investissement de proximité) and innovation mutual funds, or FCPI (Fonds commun de placement dans l’innovation). In fact, the second half of 2010, FIP’s and FCPI’s represented 62.5% of investments.

N.B. you can learn more about these and other French investment terminology here. See below for explanation of FCPI from that link.

Another trend is that most venture capital firms invest in the last stage, or second rounds, instead of early stage investments. Early stage made up only 7% of VC investments in the last ten months of 2010.

One last note is that the health, life sciences and pharmaceutical industries make up almost 25% of venture capital investments.

FCPI: French type of mutual funds, created in 1997, intended to support the development of innovating firms.

The capital collected by a FCPI is invested at least up to 60 % in the capital of non listed companies, or of limited liability companies, to which the Agence nationale de la valorisation de la recherche (ANVAR) gives the label “innovating”.

Subject to keep the FCPI shares during at least five years, the subscriber profits from tax advantages at the time of the subscription (tax cut) and at the time of the resale (possible exemption of the cashed products and the appreciations in certain cases)

French CAC 40 stock market up on US Fed news

November 4th, 2010 No comments

The CAC 40 stock market rose above 3900 points Thursday morning, its highest point in six months. This represents nearly a 2% rise. For background on the Federal Reserve’s decision to inject a further $600 billion into the US economy in a second round of “Quantitative Easing”, you can check out BBC’s special report and their Q&A feature. The Economist also presents sound analysis of the Fed’s move.

For further analysis in French, you can read this article from Les Echos, the French equivalent of the Wall Street Journal, which itself features in-depth coverage of the Fed’s move.

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