The Paris Bourse belies France's socialist cast
While New York, Tokyo, and London get most of the attention, nominally socialist France is rapidly coming up to speed as a free-enterprise financial capital. The Fran,cois Mitterrand-Jacques Chirac government is selling off a brace of government-owned industries and encouraging foreign investment and financial liberalization.Skip to next paragraph
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While the Paris Bourse remains smaller than its counterparts in New York, Tokyo, and London, it will grow in capitalization as the shares of 65 French companies are denationalized over the next five years.
``It is true that right now the Paris market has a market `cap' that is the size of IBM,'' says Fr'ederic Huignard, vice-president of New York-based Interfinance, a consortium of French brokers that advises Americans on the Bourse. ``But the market is not thin. There is no problem with a $500,000 or $1 million investment, and there is no problem exiting.''
As a result, says Mr. Huignard, pension funds and mutual funds in the United States are showing more interest in France today both because of financial deregulation and because the Bourse has performed strongly.
The Indice G'en'eral CAC, which tracks the most active stocks on the forward market, has risen some 45 percent since Jan. 1, and Huignard and his associates predict ``a 50 percent rise for the whole year.'' With conversion of francs into dollars, the market has done even better: up more than 60 percent.
The market should remain flat through the end of the month, Huignard says, but turn bullish in November and December. He notes that the market ``remains not too expensive,'' with a price/earnings ratio of about 16.
Over the long run, the privatization wave (the law authorizing the sale of the 65 companies was passed July 31), combined with an improving economy and more liberal financial policies, encourages French equities, says analyst Irene Zalessky of Barclays de Zoete Wedd, a British brokerage.
``The privatization program will provide investors with a unique opportuity to purchase marketable shares of companies in a strongly expanding economy,'' Mrs. Zalessky told New York investors recently.
Foreigners may own up to 20 percent of the share capital of these newly privatized companies -- ``a clever move,'' notes Zalessky, since French institutions will snap up the offerings and ``be able to unload at an immediate profit to nonresidents.''
In addition, many of the nonvoting investment certificates of state-owned companies can now be exchanged for common stock.
In September and early October, partial sale of Elf Aquitaine, the state-controlled oil group, was more than five times oversubscribed, according to the Paris Stockbrokers' Association. The Elf sale came shortly before the kickoff of the five-year privatization program, which involves state-owned banks, insurance companies, and industrial groups.
First on the block will be Cie de Saint Gobain, with shares due to be offered in late November. Saint Gobain is one of the world's leading producers of glass, cast-iron pipes, and construction materials. Groupe Paribas and Assurances G'en'erales de France will probably go on the market after that.
In many ways, France is playing catch-up with other financial capitals. Zalessky points out that for a country that ranks No. 4 in the world in gross domestic product, accounting for 6.6 percent of the total, the French market is only 2.2 percent of world capitalization.
But when the 65 companies have been privatized, Zalessky says, stock market capitalization will have risen 20 percent -- from about 1 trillion francs now to 1.2 trillion.
Zalessky says she does not expect privatization to absorb liquidity, pointing to the huge oversubscription of a Banque Nationale de Paris offering in May -- and now of the Elf offering -- as evidence of the ``huge amount of untapped resources available.'' She expects net redemptions in the French bond market to fuel equity market purchases also.
``Huge amounts of cash,'' says Huignard of Interfinance, have been generated as a result of ``a new retirement policy, mutual funds, tax deductions. . . . Big holding companies have accumulated cash in order to invest in privatized firms.''
The French government is watching developments in London related to the Oct. 27 ``Big Bang'' of market deregulation, says Huignard, and he expects a similar abolition of fixed commissions in France by mid-1987.
In addition, trading hours of the Bourse were extended last March, a computerized trading system is being expanded, and the Second Market, consisting of shares of mid-size, high-growth companies, has grown rapidly in five years and now lists 200 companies.
These trends antedate the rise in power of Premier Chirac and France's rightist alliance, but they are accelerating now and are likely to persist under almost any possible ideological makeup of the government.
A Thursday column