Analysis of the Impact of Stagnant French Private Sector Activity on European Stock Markets

December private sector activity data in France indicates stagnant economic growth, reflecting deep-seated issues in Europe’s sluggish economic recovery. According to the latest data, France’s December HCOB Composite PMI flash reading fell to 50.1, barely remaining above the expansion-contraction threshold but approaching stagnation. Among them, the manufacturing PMI flash reading jumped from 47.8 to 50.6, returning to expansion and hitting a 40-month high, while the services PMI flash reading dropped from 51.4 to 50.2, showing a significant slowdown [1].

Looking at the performance of major European stock indices in 2024, overall valuations of European stock markets are already under pressure. Data shows that the P/E ratios of major European indices have a negative deviation of approximately 7.38% from their historical averages, indicating that overall market valuations are relatively low [0].

• CAC 40 shows relatively stable performance
  : Up approximately 7.92% year-to-date in 2024, with a current P/E ratio of 14.2, an 8.4% undervaluation relative to the historical average of 15.5
• Euro Stoxx 600 under pressure
  : Slightly down 1.17% in 2024, reflecting the overall weakness of the European economy
• DAX performs strongly
  : Outstanding performance year-to-date, with an expected return of 7.2%, the highest among major European indices

In the face of economic stagnation risks, we recommend adopting a defensive investment strategy:

: The average dividend yield of European stock markets reaches 3.62%, providing a stable source of income in a low-growth environment. The dividend yields of FTSE 100 and FTSE MIB are 4.1% and 4.2% respectively, which are highly attractive [0].

: In a valuation contraction environment, value stocks show stronger performance relative to growth stocks. According to the Fama-French model, the HML factor indicates that value stocks have significant advantages in the current environment [2].

: France’s manufacturing PMI has returned to the expansion range, hitting a 40-month high, indicating that Europe’s manufacturing industry may usher in a structural recovery. Related industries include:

• Industrial equipment manufacturing
• Auto parts
• High-end equipment manufacturing

: Although the services PMI has declined, certain segments still have investment value:

• Financial services benefit from the interest rate environment
• Tech service companies have growth potential
• Healthcare service demand is relatively stable

: European stock markets have a significant valuation discount relative to U.S. stocks. The current P/E ratio of CAC 40 is 14.2, while the S&P 500’s P/E ratio is usually above 20x, providing a good margin of safety for long-term investors [0].

: The European Central Bank may adjust its monetary policy stance in 2025, providing liquidity support for the stock market. In addition, the EU’s Green Deal and digital transformation policies will bring long-term growth momentum to related industries.

: France’s budget negotiations have entered a critical stage, and political games may intensify market volatility [3]. Investors need to pay attention to:

• France’s final 2026 budget plan
• EU fiscal policy coordination
• Impact of geopolitical conflicts

: Although European inflation has declined somewhat, it is still above the central bank’s target level, limiting the space for monetary policy easing.

: Diversify investments across different countries and industries to reduce single-market risks.

: Consider the impact of euro exchange rate fluctuations on investment returns, and use foreign exchange derivatives to hedge at the right time.

: Choose high-quality companies with sound finances and sufficient cash flow, which have stronger risk resistance in the economic downturn cycle.

• Position Control
  : Maintain a neutral to cautious position
• Sector Allocation
  : Overweight consumer staples and healthcare, underweight cyclical industries
• Stock Selection
  : Focus on high-dividend, low-valuation high-quality targets

• Gradual Position Increase
  : Lay out at dips when the market overreacts
• Structural Opportunities
  : Focus on manufacturing upgrading and green transformation themes
• Geographical Balance
  : Increase allocations in relatively stable economies such as Germany and Northern Europe

• Strategic Allocation
  : Treat European stock markets as an important part of global asset allocation
• Thematic Investment
  : Focus on long-term growth themes such as artificial intelligence, new energy, and biotechnology
• ESG Integration
  : Incorporate environmental, social, and governance factors into investment decisions

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The stagnation of French private sector activity reflects the deep-seated challenges facing the European economy, but it also provides structural opportunities for investors. Currently, European stock market valuations are relatively reasonable and have good long-term allocation value. Investors should adopt a composite strategy of ‘short-term defense, medium-term flexibility, long-term optimism’ to control risks while seizing structural opportunities.

Analysts are generally optimistic about European stock markets in 2026, with the Stoxx 600 index expected to rise by about 7% [4], indicating that market expectations have turned positive. However, investors still need to closely monitor changes in economic data and policy trends, and adjust investment strategies dynamically.

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[0] Gilin API Data - European Stock Market Valuation Analysis and Index Performance Data

[1] Yahoo Finance - “France’s December HCOB Composite PMI Flash Reading Drops to 50.1, Manufacturing Returns to Expansion” (https://hk.finance.yahoo.com/news/經濟-法國12月hcob綜合pmi初值降至50-1-製造業重拾擴張-082402896.html)

[2] Investopedia - “Understanding HML: The Value Premium in the Fama-French Model” (https://www.investopedia.com/terms/h/high_minus_low.asp)

[3] Bloomberg - “French Budget Endgame Means Stress Test for Stocks and Bonds” (https://www.bloomberg.com/news/articles/2025-12-05/french-budget-endgame-means-stress-test-for-stock-bond-markets)

[4] Yahoo Finance - “Last Time Strategists Were This Bullish, European Stocks …” (https://finance.yahoo.com/news/last-time-strategists-were-bullish-081001137.html)