(BFM Bourse) – Luxury and high technology in mind, the main players in the rise of the CAC 40 to its recent historic peak continue to suffer a severe correction due to inflation, which is pushing valuation ratios to moderate.
The downward movement started on Thursday continues on Friday on the CAC 40, which lost 0.60% to 7,157.73 points around 12:30 p.m. under the effect of a further decline in the luxury compartment, the most heavily weighted within the index. Parisian, or technology. These sectors, which benefit from high valuation ratios, find themselves suffering in the face of rising inflation and therefore higher interest rates. Schematically, if investors expect inflation to rise from 1 to 2% to 6 or 7% over the long term, they tend to demand a higher risk premium on securities whose valuation is based on longer-term profits.
To take a striking example, Hermès is paying itself more than 60 times the amount of profits that the group should record this year according to the analysts’ consensus, an extremely high multiple if we therefore refer to the immediate results, because that investors think the potential for profits within a few years justifies it. However, the higher the inflation (and therefore the return on shorter-term investments), the less it is (comparatively) interesting to bet on future growth, which lowers the prices of so-called “growth” securities.
While the last intervention of the head of the Federal Reserve, Jerome Powell, had somewhat reassured the markets in the middle of the week, the tone deemed less accommodating by his future vice-president Lael Brainard on Thursday contributes to discouraging the appetite for growth – Generally speaking, phases of accelerating inflation are conducive to volatility insofar as investors struggle to grasp the extent of the rise in prices and rely a great deal on the interventions of central bankers in an attempt to locate.
Hermès in the red
This is what is currently happening for luxury in particular (down an additional 1.5% this Friday, Hermès brings its decline since the start of the year to -14.75%, dead last in the CAC 40) but also for technology stocks like Eurofins, Dassault Systèmes, Teleperformance, etc.
Conversely, “value” securities, valued more modestly, essentially on their short-term performance, are doing better: a Carrefour (valued around 12 times its expected profits for 2021, five times less than Hermès) thus earns almost 2% on Friday, Orange (less than 10 times its annual profits) by 0.6%.
EDF in great difficulty on the stock market
Apart from this sector rotation which constitutes the marker of this beginning of 2022 on the stock market, the stock market event of the day is the fall of more than 16% by EDF following the announcement by the French government of new measures aimed at limiting the rise the price of electricity and the concomitant revision of the production forecast for the energy company’s nuclear fleet.
The gradual start of the publication season is beginning to animate the market, with sales re-accelerating at Thermador in the fourth quarter of 2021. Up by nearly 2% at the start of the session, the share however moderates to + 0.1% its lead at mid-session.
Esker, which appears to be a growth stock if ever there was one (at more than 100 times the expected profit) fell by almost 9%, even if the Lyon-based firm reported record turnover for both the fourth quarter than for the full year 2021.
On the foreign exchange markets, or Forex, the euro, which has been in very good shape since the start of the year, has stabilized at 1.1450 dollars.
Oil prices are accelerating again with almost 1% gains on a barrel of Brent at 85.30 dollars, which benefits TotalEnergies (+1.3%).
Guillaume Bayre – ©2022 BFM Bourse