Patrick Artus, Research Analyst at Natixis, lists down the various conditions based on which they will be very optimistic.
“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.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.