French debt worries spill into stocks, driving biggest underperformance since 2010
Investors demand big discounts against regional peers to reflect troubled public finances and looming presidential election
Emily Herbert and Ian Smith in London
French stocks are lagging their European peers by the widest margin since 2010, as investors demand steep discounts to reflect the country’s challenged public finances and a looming presidential election.
The benchmark Cac 40 index has tumbled since early August as a brutal sell-off in the country’s government bonds, sparked by nerves about debt sustainability, spilled into other assets.
French stocks are down 3 per cent in 2026, while the region-wide Stoxx Europe 600 is up more than 7 per cent.
The sell-off has been especially damaging for a market that was already struggling with its heavy exposure to troubled sectors such as luxury goods and carmakers.
“France used to trade at a premium to the rest of Europe but that has clearly shifted,” said Kevin Thozet, a member of the investment committee at French asset manager Carmignac.
He pointed to a snap parliamentary election in 2024 as the beginning of a “broad-based” French underperformance that has sharpened since the summer.
Investors say the country’s lagging markets are unlikely to make up ground quickly.
“It is going to be very hard to get anyone bidding French stocks in the coming weeks,” said Emmanuel Cau, head of European equities strategy at Barclays, pointing to ongoing negotiations over France’s budget and next April’s election as making it “hard to get visibility or stability”.
The recent sell-off, led by bank stocks, is piling extra pressure on a market that was already under strain.
In the first half of this year, French banks had been riding a broad rally for the sector in Europe.
But that momentum ended with the bond market sell-off, which has spilled into broader Eurozone markets in recent weeks.
French banks are big holders of government debt, and investors worry that the bond market rout could hit economic growth and sour their loan books.
Shares in Société Générale have dropped more than 20 per cent since the start of August, and BNP Paribas has tumbled 19 per cent, as the euro hit its lowest against the pound and the dollar since mid-2025.
“Buying French banks is for the brave,” said Thozet at Carmignac.
“I don’t think there will be many heroes out there.”
The luxury sector, one of the heaviest weightings in the French market, has slumped this year as a multiyear downturn in demand for high-end goods has weighed on earnings.
Luxury goods giants LVMH, Hermès and Kering are all down more than 25 per cent this year.
At the same time, big French carmakers such as Stellantis and Renault are being squeezed by US President Donald Trump’s trade tariffs on the one hand and fierce Chinese competition on the other.
Stellantis is down almost 60 per cent in 2026 and Renault has lost 25 per cent.
With its heavy weighting towards industrials, banks and luxury, France’s large-cap market has relatively little exposure to energy and technology stocks, the top-performing sectors globally this year. Gains have been heavily concentrated in these little-represented sectors: chipmaker STMicroelectronics is up 94 per cent this year and TotalEnergies has gained 44 per cent.
Weakness in French stocks contrasts with resilience in other European markets. Equities in the UK, Germany, Italy and Spain have all rallied this year, with the latter two up more than 11 per cent.
The deep sell-off in French government debt has pushed 10-year borrowing costs to nearly 5 per cent, their highest in almost a quarter of a century, feeding worries over the sustainability of France’s debt pile, which is equal to almost 120 per cent of GDP.
Some big investors have warned that the fiscal outlook could worsen further as politicians tussle over a €54bn savings drive in the government’s draft budget while trying to pander to voters ahead of April’s presidential election.
“There are concerns about the potential impact on the economy as yields rise,” said Vincent Chaigneau, head of research at Generali Asset Management, on the weakness in French stocks and credit.
“Confidence is low and is going to remain low into the election.”
Some argue that beaten-down equities will find buyers.
Marina Zavolock, head of European equities strategy at Morgan Stanley, said the sell-off in French stocks looked like a “sentiment-driven trade” following the bond market weakness.
“Time will tell if it comes through in earnings fundamentals, but we see limited signs of that for now,” Zavolock said.
“Typically, this is a good point to buy the dip.”
But others warn that stocks could take a fresh leg lower if the economic troubles deepen.
In a note this month, analysts at Goldman Sachs said that a “specific French risk premium” explained around half of France’s underperformance against other European equity markets in recent years.
“Almost every French sector now trades at a discount to its European counterpart and at an even larger discount to US peers,” they said, warning that domestically exposed equities could face a further hit if “political uncertainty persists, domestic growth weakens or pressure on the euro intensifies”.
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