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Prime Minister Sebastian Economy, meeting the Socialist Party this morning, then the Greens and the Communist Party as well as he's trying to discuss or build support for his budget plans as we came down to that deadline. Though, I want to get the perspective of Christopher Denbeck, senior investment manager at Pecta Asset Management. Chris, great to see you,
Thanks very much for joining us this morning. From your point of view, I mean, how do you view this uncertainty in terms of framing for French assets.
Well, I don't see it. There's a big risk. I think over the past two years we have seen that the French economy is not performing quite well, mostly due to the publical situation. We all expect uncertainty, political uncertainty. We lost at least until the next prison election, so we have until twenty twenty seven. I'm very pessimistic regarding
the outcome of the negotiation tonight. I have some contacts in the government and apparently the bet is that love a new election in November potentially, But even if this happened, I don't think it will solve the situation. So for most investors or even when you talk with companies, anyone knows that investituation won't get better anytime soon, so we are getting used to this. I had recently talks with French investors, but on French debt in quite a large quantity.
What they told me is we're not afraid at all because basically, over the past two years have reduced the exposure to French assets. So everything has already happened. And I guess I'm not only one pessimistic, but most of the French business community is and nowadays.
So I mean, is there a worst case scenario then if things play out? I mean, does having the Soucialist party in the government now and not elections? Is that better than having elections manivester point of view? I mean, how do you look at the various scenarios?
Well, from an investor note of view, I think the best is to have a new election or a technical government. We're all quite afraid if we have a socialist or far left to government. Obviously, I think one of the biggest issue we've left is that the consider of the French economy is in quite good chap. But as a retul fact. If you look at economic activity, we might be around the open five percent this year, and they want to increase taxation. You know, you have all the
discussion how to increase much more taxation. I don't think this is the right way to deal with the situation. But if we have left government, we are without obvious support from the far left. I think it's not good for the economy. So most of the investors are quite a free on taxation. Liveral is already quite high in France.
One of the key comments we've been watching this morning is some former prime minister Elizabeth Bond, someone who brought the pension reforms through Parliament when she was Prime minister. She's now saying that she could be in favor of suspending that reform. I mean, what's your view on that proposal.
Well, it's a complete nonsense. Nowadays we have in terms of public deficit it will be around five point four percent of GDP, which is one of the worst in the Open Union. So let's say that you suspend very farm. You need to find, according to my assessment, you need to find every year between twenty and thirty billion year or more. So, where do you find it. I mean,
we're enable evant to reduce the deficit at all. So if you suspend very formally for political purpose, the issue is that at the end of the day, your deficit will keep increasing. So yes, clearly live investors or you don't have speculative attack against the French debt. But right now we don't know if it will happen. You know, in the bond market, everything can fold down very fast, so nowadays is very quiet. I expect it will remain like that. But let's say that we susponn the bone
of the punsion reform. No one knows what's going to happen on the bond market, so you could have speculative attacks against French assets. So that's that's why I think three not wise.
What sort of move? What that mean in terms of yields or the spad Germany.
Well, let's say we're around for the ten year bond market for the French government bones we're around three point five three points seven percent film, which might be the top. If we jump around four percent, it will be already quite challenging, you know. I mean, we have seen it for Greece, and I don't compare friends with grace, but from one moment to another, almost over night, everything can fold on. So that's why I think we need to
be very careful. And obviously foreign investors we don't look at all the reforms that France is implementing, but we all know that we need to be very wise regarding the pension reform. So we need to be careful. And if we suspend it, well, let's say, let's be very transparent. It's not the suspension. It means that we will just console the reform, so we will have sooner or later on new debate about it. So it's not right solution
to deal with the situation. And I think from a political point of view, it was not already enough to do this reform, so we cannot get back to this.
Is that is the spending person one of the biggest risks, the fascal lightlub.
Now yes, I mean if you look from twenty to seventeen, half of inciece of public debt is only due to the pension, so we need to deal with that. It's not an what we have done over past few years, so sooner or later we'll need to deal with that. If we have left government, obviously we won't deal with the situation because we left concider that there is no
pension reform issue. So what is striking is that for some politician in France nowadays it's like France is a complete is a country where all the rules of economics does not apply. All other countries are nowadays implementing pension reform. I think in Denmark, and you retire at seventeen years old. Nowadays in France you want to get back to sixty years solds It does not make sense and sooner or
letter you will pay it. You will pay it because you will have higher cost of borrowing for the states, but also for all the companies, or you can have, in the worst case scenario, speculative attack against franch assets.
So how do you try the next eighteen months and franch assets that roughly how long has left on Themania Marcan's presidency at the moment we assume he will serve to the end of his term.
How do very I mean very clear, and we have done the same thing since over the past two years. We have a lower exposure to franch assets even like very strong companies let's say the luxury sector is obviously strong in France. Very nice companies, but we see clearly that all the French are sets are not performing quite well,
especially compared with over open A sets. And when I discuss with other companies, even insurance companies, French banks and so on, we are all doing the same thing because we see it as a tail risk for the market.
Okay, Christopher Dan, but great to have you with us. Thanks very much for joining us em Paris this morning. Senior investment manager at Pectae Asset Management