Catherine Garrigues (AllianzGI): “We are not in bubble levels”

Posted on Dec. 2021 at 13:45Updated 30 Dec. 2021 at 13:50

While the Paris Bourse has climbed nearly 30% this year to set new historical records, should we fear a risk of a bubble as in the early 2000s?

No, we are not in bubble levels, the rise in prices is justified by the rise in profits. When we compare the results of companies between 2021 and 2019, that is to say before the crisis, we realize that we are above. The shock of 2020 has been more than erased, even if the differences between the sectors most affected by the virus and the others remain significant.

Some sectors have truly prospered and are showing activity levels much higher than in 2019. This is particularly the case for luxury goods: households have consumed what they have not spent on travel and other leisure activities. The industrial sector with Schneider Electric, Legrand and Saint-Gobain benefited from the resumption of investments, and the tech sector with Capgemini and Dassault Systèmes in particular, from the pursuit of digitization.

However, these sectors are very present in the CAC 40, like the first European capitalization, the champion of luxury LVMH. This explains the outperformance of the Paris index this year: the conjunction of the recovery in the economic cycle and strong growth world leaders.

Can the stock market continue to grow next year?

First and foremost, it will depend on profit growth. There was a very significant catch-up effect this year, which contributed to the sharp rise in the markets. This will not be the case in 2022, but the consensus nonetheless expects an increase in results of between 5% and 10% in Europe. We can hope for a similar progression of the CAC 40.

It must be said that the Paris Bourse has many performance drivers that take advantage of long-term trends. Luxury groups like LVMH, Hermès, Kering or even L’Oréal are surfing the development of the Chinese middle class. The management of these companies is confident in their ability to continue to grow.

French manufacturers are also well placed to take advantage of the investments necessary for the ecological transition, whether in buildings, factory automation or electrical components.

What risks weigh on the equity markets in 2022?

The main unknowns are inflation and disruptions in supply chains, sometimes exacerbated by a lack of manpower in certain sectors. There is wage inflation already present in the system, although it is not yet visible in the macroeconomic data.

An inflationary slippage would be very dangerous. Central bankers are a bit stuck, they risk panicking the market by reacting too fast or too hard. We will have to see whether we observe a real inflection point in inflation at the start of the year, followed by a period of decline.

If this were the case, investors would be reassured about the timing of the rate hike. Real interest rates should then remain in negative territory, which should support the equity markets.

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