Olivier de Berranger (LFDE): “The market knows that political instability is here to stay in France” | Financial markets

La Financière de l’Echiquier (LFDE) is an independent French asset manager with over 27,000 million euros in assets under management and has been present in Spain since 2019. Its formula is active management with a sustainability stamp and a focus on megatrends such as health or artificial intelligence. Olivier de Berranger, the company’s CEO, explains that the manager has also benefited from the bullish wave generated by Trump’s victory and believes the US stock market will be the clear winner in the short term. On the contrary, he is very cautious regarding the eurozone and France, where he sees high political risk.

Ask. How do you see the eurozone? What are the reasons to invest in the European stock market when there is a risk of recession and political risk?

Reply. The outlook is grey. But you don’t have to analyze companies by their zip code. In general, being a European company is not more disadvantageous; This will depend on where you manufacture and where you sell. I’m not worried about European companies because their valuations are very low historically and that provides protection from bad news from the US, which is already largely priced in.

TO. Are you worried about the situation in France?

R. We believe that the government’s forecast for French economic growth of around 1.5% in 2025 will not be feasible. I would be surprised if growth was above 1%, it would be good if that level was achieved. Something similar is happening in Germany, the industrial sector is in recession. The outlook for the eurozone is pessimistic but not hopeless, we do not predict a recession in the region as a whole, potential growth for the eurozone is around 1%.

TO. Do you fear a greater penalty for the French stock market and that the current risk premium supported by French sovereign debt will also put pressure on the CAC?

R. The market has realized that political instability in France will not go away, and it is very difficult to create a new parliamentary majority. There is a risk premium on French sovereign debt, and 10-year bonds have become higher than Spanish ones, Greek five-year bonds are cheaper than French ones for this period. The new government has promised to cut government spending. If this is not done, the penalty for the debt will be greater. It is also important to consider that if Trump significantly increases the US deficit, its sovereign debt may not be as attractive. And this can give the relative value of European sovereign debt. There could be a big opportunity in the European bond market if the new German government becomes more pro-spending and issues more debt, making Spanish or Italian debt less attractive.

TO. What are your plans for Spain?

R. We have been present in Spain since 2019 and want to ensure the stability of the LFDE brand on the Spanish market. We know this takes time, we are here to stay and we want to invest and be visible in this market. It is very different from the French, it is very concentrated, with excellent substitute players. Spain is an interesting market and may also be in Latin America. And this is not a market where investors are biased towards risky assets.

TO. Do you think this is an attractive market for investment?

R. Yes, absolutely. Unlike France, Spain is a market where there are both large and small listed companies, and fewer medium-sized listed companies. And given the weakness of the French or German economies, it is necessary to diversify the portfolio through markets such as Spain or Italy.

TO. Do you see political risk in Spain?

R. In terms of economic policy and long-term investment, recent years in Spain have not been marked by major changes in fiscal policy or foreign investment. On the other hand, in France, the extreme left could come to power in the July elections, and big changes in economic policy could occur.

TO. Will Trump’s victory be a positive for Wall Street, or is there a risk that his inflationary policies will backfire on the US stock market?

R. In the short term they will have a positive effect. Firstly, due to lower taxes, which is always beneficial for risky assets. Secondly, due to deregulation, both large companies and small ones find it more expensive in relative terms to comply with regulatory requirements. This is, for example, what is happening in Europe with the regulation of digital sustainability of financial institutions DORA, the implementation of which requires resources and time. Another element is the enormous amount of liquidity in the US available for investing in risk assets. And the lower energy costs they incur also benefit U.S. companies, which they are seeking to cut under Trump. The US is already the world’s largest oil producer. There are four reasons why Trump’s mandate will have a positive impact on Wall Street in the short term. In the medium term, things are less clear: We will have to see the effective scale of his measures: if he raises tariffs too much, it could harm economic growth, and if he cuts taxes too much, it could significantly increase the already high deficit. Everything will depend on what happens between what Trump promised on the campaign trail and what he actually does.

TO. Will the market set limits on Trump’s policies, red lines on tariffs and taxes?

R. Yes, it is true that in the past the bond market has drawn a red line on what can be done, as it did in the UK, Italy or Spain. This may happen at some point, but it is difficult to say when since the United States is the largest economy in the world and the largest issuer of debt. Under Trump, the deficit could rise to 10%. The market can suddenly appear, but it is very difficult to determine when exactly. What happened in the UK with Liz Truss provides an interesting precedent, but while the UK market is not small, it is not the US market.

TO. Have you recently changed your portfolio due to the US elections and Trump trade?

R. Yes, in September we began investing more in US assets. And we bought several European companies with manufacturing facilities in the United States, while reducing the exposure of European companies that export to the United States. The movement was 2% or 3% of the portfolio.

TO. Are they still in mode? Trump trade?

R. I wouldn’t call it exactly Trump trade. We still prefer dollar assets. Since September, the market has already heavily discounted Trump’s policies.