The French Stock Market Rises?

Inspired by one of my favorite blogs, No Pasaran, I was doing some research this weekend for a post when I came across an anomaly that I can't explain. The French stock market has risen 30% in the last year. That is a huge increase. By comparison, the Dow Jones Industrial Average is up about 10%. Here's the comparison chart.


Comparing the two countries, it makes no sense at all. France has double the unemployment, one third the growth rate and no substantive increases in productivity. In short, there is no reason why an investor would put his money into a French company.

Then I took a look at the price-earnings (PE) ratios of French companies compared them to American companies. They seem pretty similar. Accor, which runs hotels in Europe has a PE comparable with Marriot. Carrefour, which runs the supermarkets, has a PE comparable with Safeway. Peugeot and Renault have PE ratios normal for car companies.

The only thing I can think of is that the French stock market was very undervalued a year ago.

Other possiblities:

1. The French government is printing money like there's no tomorrow. The money is being used to buy stocks, driving up the prices. If I were in France, I would rather put my money in the stock market than try and start a business myself or hire workers for one I already had. However there is no inflation in France. If the government was going wild with the printing presses, you would expect inflation.

2. Speculation. There is some odd confluence of speculation in the market. This is not unreasonable when you consider what happened with Amazon.com. Amazon is essentially a discount retailer. It makes almost no money at all, regardless of how much it grosses. It's stock price is overvalued compared to someone like Dollar General which has a similar business model. People buy Amazon.com stock because other people are buying it. Remember when it was around 110? It didn't make money then, either.

I'm running out of explanations. The large increase in the CAC-40 simply doesn't jive with the financial data and the news out of France. I don't get it at all.