French market specificities

Some things to know!

Hello!

Like every market, the french market has its own speceficities!

Let us look at some of them:

• for small and mid caps it is market which is highly dependend on inflows and outflows. On some companies it is the same funds which tend to buy and sell.

• there are two tax favorable enveloppes (no taxes on realized gains (if gains are reinvested in the enveloppe) after a certain period which begins when the enveloppe is opened and the dividends received are net/tax free) in France which enables individual investors to invest in shares: the PEA and the PEA PME. The list of companies which are eligible for the PEA PME will be much larger and give more choice to investors. It will also incentivize individuals to open or to allocate more cash to this enveloppe. Sometimes individuals tended to have the same quality companies as the choice was reduced.

• Market regulator is quite passive. Understand that minority shareholders should not expect a massive defense of its rights by the regulator. In general they validate quite quickly what the independent experts say during tender offers. Protection is higher during a take out as it is considered as an expropriation.

• Independent experts will most of the time confirm the price offered by the company during the tender offer. How could it be otherwise as the independent experts are paid by the companies themselves… A good indicator of a real independent expert is the fact that he or she will give a higher price then the one offered by the company.

• I will be tough but french are not encouraged to invest in shares. Financial litteracy is low in my opinion. This isn’t helped by our retirement system which is based on repartition (funded by contributions based on the professional income of active workers) and not on capitalisation (self funded retirement which favors investment in shares on a long period). Add to that that the french like to invest in life insurances with guaranteed products (no loss of capital but very low remuneration).

• Buybacks are not that well considered by the CEO of SME’s. And in general this tool is not as well used as in the USA or in Canada. Yes some companies do them but when you talk to the CEO’s of SME’s they tend to prefer to reinvest in the company (capex).

• When insiders regularize their buys (i.e when they declare their buys a couple of months late ) it is an interesting tell. Usually they are making sure to regularie everything before making some important moves (take outs).

Cheers!

Jeremy