France: Positive on equities based on conditions - Natixis

Patrick Artus, Research Analyst at Natixis, lists down the various conditions based on which they will be very optimistic.

Key Quotes

First condition: A favourable tax policy in the United States

If the Trump administration: 

- Significantly lowers taxes on corporate profits in the United States (from 35% to 15% or 20%), which would increase post-tax profits by about 1.5 percentage points of GDP; 

- Significantly lowers taxes on profits repatriated to the United States (from 40% to 10%), which could significantly stimulate share buybacks, then the US equity market, and as a consequence the European equity market, will be strongly stimulated.”

Second condition: A major decline in political risk in France

If the result of the presidential elections in France causes a sharp fall in political risk (which can be measured by sovereign risk premia), French equities will rise: their discount relative to German equities is due to political risk.”

Third condition: A sharp reduction in taxes on capital income in France

The level of taxes on capital, and especially taxes on dividends, is extremely high in France. For a high-income French person paying the wealth tax, the tax on dividends is 75%. 

If the next government in France after the elections significantly reduces the taxes on equity income, this would obviously be positive for French equities.” 

“Conclusion: If you believe that these three conditions will be met, then buy French equities

If you believe that there will be:

- A sharp cut in taxes on corporate profits in the United States;

- A major decline in political risk in France; and

- A sharp reduction in taxes on equity income in France, then buy French equities, since their valuations and prices will rise markedly.”