1 00:00:02,600 --> 00:00:08,480 Speaker 1: Bloomberg Audio Studios, podcasts, radio news, thegoing. 2 00:00:08,000 --> 00:00:10,960 Speaker 2: Prime Minister Sebastian Economy, meeting the Socialist Party this morning, 3 00:00:11,000 --> 00:00:13,159 Speaker 2: then the Greens and the Communist Party as well as 4 00:00:13,200 --> 00:00:16,720 Speaker 2: he's trying to discuss or build support for his budget 5 00:00:16,800 --> 00:00:18,960 Speaker 2: plans as we came down to that deadline. Though, I 6 00:00:18,960 --> 00:00:21,320 Speaker 2: want to get the perspective of Christopher Denbeck, senior investment 7 00:00:21,360 --> 00:00:23,480 Speaker 2: manager at Pecta Asset Management. Chris, great to see you, 8 00:00:23,520 --> 00:00:26,320 Speaker 2: Thanks very much for joining us this morning. From your 9 00:00:26,360 --> 00:00:28,800 Speaker 2: point of view, I mean, how do you view this 10 00:00:29,000 --> 00:00:32,760 Speaker 2: uncertainty in terms of framing for French assets. 11 00:00:32,960 --> 00:00:35,120 Speaker 1: Well, I don't see it. There's a big risk. I 12 00:00:35,159 --> 00:00:37,440 Speaker 1: think over the past two years we have seen that 13 00:00:37,520 --> 00:00:40,480 Speaker 1: the French economy is not performing quite well, mostly due 14 00:00:40,479 --> 00:00:45,640 Speaker 1: to the publical situation. We all expect uncertainty, political uncertainty. 15 00:00:45,680 --> 00:00:48,440 Speaker 1: We lost at least until the next prison election, so 16 00:00:48,479 --> 00:00:52,320 Speaker 1: we have until twenty twenty seven. I'm very pessimistic regarding 17 00:00:52,360 --> 00:00:56,080 Speaker 1: the outcome of the negotiation tonight. I have some contacts 18 00:00:56,080 --> 00:01:00,200 Speaker 1: in the government and apparently the bet is that love 19 00:01:00,240 --> 00:01:05,080 Speaker 1: a new election in November potentially, But even if this happened, 20 00:01:05,240 --> 00:01:07,679 Speaker 1: I don't think it will solve the situation. So for 21 00:01:07,840 --> 00:01:11,679 Speaker 1: most investors or even when you talk with companies, anyone 22 00:01:11,800 --> 00:01:15,000 Speaker 1: knows that investituation won't get better anytime soon, so we 23 00:01:15,040 --> 00:01:18,440 Speaker 1: are getting used to this. I had recently talks with 24 00:01:18,720 --> 00:01:22,600 Speaker 1: French investors, but on French debt in quite a large quantity. 25 00:01:23,080 --> 00:01:25,039 Speaker 1: What they told me is we're not afraid at all 26 00:01:25,080 --> 00:01:27,920 Speaker 1: because basically, over the past two years have reduced the 27 00:01:27,959 --> 00:01:31,959 Speaker 1: exposure to French assets. So everything has already happened. And 28 00:01:32,280 --> 00:01:34,959 Speaker 1: I guess I'm not only one pessimistic, but most of 29 00:01:35,000 --> 00:01:37,440 Speaker 1: the French business community is and nowadays. 30 00:01:37,560 --> 00:01:39,759 Speaker 2: So I mean, is there a worst case scenario then 31 00:01:39,840 --> 00:01:42,640 Speaker 2: if things play out? I mean, does having the Soucialist 32 00:01:42,680 --> 00:01:45,280 Speaker 2: party in the government now and not elections? Is that 33 00:01:45,480 --> 00:01:48,200 Speaker 2: better than having elections manivester point of view? I mean, 34 00:01:48,200 --> 00:01:49,720 Speaker 2: how do you look at the various scenarios? 35 00:01:49,760 --> 00:01:51,720 Speaker 1: Well, from an investor note of view, I think the 36 00:01:51,800 --> 00:01:54,720 Speaker 1: best is to have a new election or a technical government. 37 00:01:55,840 --> 00:01:58,800 Speaker 1: We're all quite afraid if we have a socialist or 38 00:01:59,040 --> 00:02:03,080 Speaker 1: far left to government. Obviously, I think one of the 39 00:02:03,120 --> 00:02:05,480 Speaker 1: biggest issue we've left is that the consider of the 40 00:02:05,520 --> 00:02:08,000 Speaker 1: French economy is in quite good chap. But as a 41 00:02:08,000 --> 00:02:10,760 Speaker 1: retul fact. If you look at economic activity, we might 42 00:02:10,800 --> 00:02:14,080 Speaker 1: be around the open five percent this year, and they 43 00:02:14,120 --> 00:02:16,200 Speaker 1: want to increase taxation. You know, you have all the 44 00:02:16,280 --> 00:02:19,400 Speaker 1: discussion how to increase much more taxation. I don't think 45 00:02:19,440 --> 00:02:21,040 Speaker 1: this is the right way to deal with the situation. 46 00:02:22,160 --> 00:02:26,799 Speaker 1: But if we have left government, we are without obvious 47 00:02:27,320 --> 00:02:29,799 Speaker 1: support from the far left. I think it's not good 48 00:02:29,840 --> 00:02:32,000 Speaker 1: for the economy. So most of the investors are quite 49 00:02:32,000 --> 00:02:34,800 Speaker 1: a free on taxation. Liveral is already quite high in France. 50 00:02:34,960 --> 00:02:36,840 Speaker 2: One of the key comments we've been watching this morning 51 00:02:36,919 --> 00:02:40,280 Speaker 2: is some former prime minister Elizabeth Bond, someone who brought 52 00:02:40,280 --> 00:02:43,519 Speaker 2: the pension reforms through Parliament when she was Prime minister. 53 00:02:43,639 --> 00:02:45,560 Speaker 2: She's now saying that she could be in favor of 54 00:02:45,600 --> 00:02:49,080 Speaker 2: suspending that reform. I mean, what's your view on that proposal. 55 00:02:49,320 --> 00:02:52,040 Speaker 1: Well, it's a complete nonsense. Nowadays we have in terms 56 00:02:52,040 --> 00:02:54,519 Speaker 1: of public deficit it will be around five point four 57 00:02:54,560 --> 00:02:56,680 Speaker 1: percent of GDP, which is one of the worst in 58 00:02:56,720 --> 00:02:59,840 Speaker 1: the Open Union. So let's say that you suspend very farm. 59 00:03:00,160 --> 00:03:03,360 Speaker 1: You need to find, according to my assessment, you need 60 00:03:03,400 --> 00:03:06,040 Speaker 1: to find every year between twenty and thirty billion year 61 00:03:06,120 --> 00:03:08,400 Speaker 1: or more. So, where do you find it. I mean, 62 00:03:08,600 --> 00:03:12,080 Speaker 1: we're enable evant to reduce the deficit at all. So 63 00:03:12,160 --> 00:03:15,160 Speaker 1: if you suspend very formally for political purpose, the issue 64 00:03:15,160 --> 00:03:16,720 Speaker 1: is that at the end of the day, your deficit 65 00:03:16,800 --> 00:03:20,359 Speaker 1: will keep increasing. So yes, clearly live investors or you 66 00:03:20,400 --> 00:03:24,000 Speaker 1: don't have speculative attack against the French debt. But right 67 00:03:24,040 --> 00:03:26,600 Speaker 1: now we don't know if it will happen. You know, 68 00:03:26,680 --> 00:03:30,000 Speaker 1: in the bond market, everything can fold down very fast, 69 00:03:30,200 --> 00:03:33,160 Speaker 1: so nowadays is very quiet. I expect it will remain 70 00:03:33,240 --> 00:03:36,000 Speaker 1: like that. But let's say that we susponn the bone 71 00:03:36,040 --> 00:03:39,560 Speaker 1: of the punsion reform. No one knows what's going to 72 00:03:39,600 --> 00:03:41,960 Speaker 1: happen on the bond market, so you could have speculative 73 00:03:41,960 --> 00:03:44,520 Speaker 1: attacks against French assets. So that's that's why I think 74 00:03:44,600 --> 00:03:45,320 Speaker 1: three not wise. 75 00:03:45,440 --> 00:03:47,640 Speaker 2: What sort of move? What that mean in terms of 76 00:03:47,840 --> 00:03:49,520 Speaker 2: yields or the spad Germany. 77 00:03:49,680 --> 00:03:52,720 Speaker 1: Well, let's say we're around for the ten year bond 78 00:03:52,760 --> 00:03:55,760 Speaker 1: market for the French government bones we're around three point 79 00:03:55,800 --> 00:03:59,000 Speaker 1: five three points seven percent film, which might be the top. 80 00:03:59,360 --> 00:04:01,760 Speaker 1: If we jump around four percent, it will be already 81 00:04:02,400 --> 00:04:05,200 Speaker 1: quite challenging, you know. I mean, we have seen it 82 00:04:05,240 --> 00:04:07,400 Speaker 1: for Greece, and I don't compare friends with grace, but 83 00:04:08,000 --> 00:04:10,920 Speaker 1: from one moment to another, almost over night, everything can 84 00:04:10,960 --> 00:04:12,600 Speaker 1: fold on. So that's why I think we need to 85 00:04:12,640 --> 00:04:16,760 Speaker 1: be very careful. And obviously foreign investors we don't look 86 00:04:16,800 --> 00:04:19,520 Speaker 1: at all the reforms that France is implementing, but we 87 00:04:19,600 --> 00:04:21,840 Speaker 1: all know that we need to be very wise regarding 88 00:04:21,839 --> 00:04:24,520 Speaker 1: the pension reform. So we need to be careful. And 89 00:04:24,680 --> 00:04:28,800 Speaker 1: if we suspend it, well, let's say, let's be very transparent. 90 00:04:28,839 --> 00:04:31,039 Speaker 1: It's not the suspension. It means that we will just 91 00:04:31,120 --> 00:04:33,640 Speaker 1: console the reform, so we will have sooner or later 92 00:04:33,680 --> 00:04:36,080 Speaker 1: on new debate about it. So it's not right solution 93 00:04:36,200 --> 00:04:38,400 Speaker 1: to deal with the situation. And I think from a 94 00:04:38,400 --> 00:04:42,359 Speaker 1: political point of view, it was not already enough to 95 00:04:42,400 --> 00:04:44,960 Speaker 1: do this reform, so we cannot get back to this. 96 00:04:45,400 --> 00:04:48,040 Speaker 2: Is that is the spending person one of the biggest risks, 97 00:04:48,080 --> 00:04:48,919 Speaker 2: the fascal lightlub. 98 00:04:49,040 --> 00:04:53,920 Speaker 1: Now yes, I mean if you look from twenty to seventeen, 99 00:04:54,800 --> 00:04:57,400 Speaker 1: half of inciece of public debt is only due to 100 00:04:57,480 --> 00:04:59,680 Speaker 1: the pension, so we need to deal with that. It's 101 00:04:59,680 --> 00:05:01,960 Speaker 1: not an what we have done over past few years, 102 00:05:02,160 --> 00:05:04,160 Speaker 1: so sooner or later we'll need to deal with that. 103 00:05:05,400 --> 00:05:07,760 Speaker 1: If we have left government, obviously we won't deal with 104 00:05:07,760 --> 00:05:10,640 Speaker 1: the situation because we left concider that there is no 105 00:05:10,760 --> 00:05:14,599 Speaker 1: pension reform issue. So what is striking is that for 106 00:05:14,680 --> 00:05:17,720 Speaker 1: some politician in France nowadays it's like France is a 107 00:05:17,760 --> 00:05:22,160 Speaker 1: complete is a country where all the rules of economics 108 00:05:22,279 --> 00:05:27,440 Speaker 1: does not apply. All other countries are nowadays implementing pension reform. 109 00:05:27,480 --> 00:05:31,120 Speaker 1: I think in Denmark, and you retire at seventeen years old. 110 00:05:31,279 --> 00:05:33,200 Speaker 1: Nowadays in France you want to get back to sixty 111 00:05:33,279 --> 00:05:35,240 Speaker 1: years solds It does not make sense and sooner or 112 00:05:35,279 --> 00:05:37,560 Speaker 1: letter you will pay it. You will pay it because 113 00:05:37,600 --> 00:05:39,880 Speaker 1: you will have higher cost of borrowing for the states, 114 00:05:39,880 --> 00:05:42,359 Speaker 1: but also for all the companies, or you can have, 115 00:05:42,440 --> 00:05:46,120 Speaker 1: in the worst case scenario, speculative attack against franch assets. 116 00:05:46,279 --> 00:05:49,400 Speaker 2: So how do you try the next eighteen months and 117 00:05:49,560 --> 00:05:51,880 Speaker 2: franch assets that roughly how long has left on Themania 118 00:05:51,960 --> 00:05:54,480 Speaker 2: Marcan's presidency at the moment we assume he will serve 119 00:05:54,560 --> 00:05:55,560 Speaker 2: to the end of his term. 120 00:05:55,839 --> 00:05:58,360 Speaker 1: How do very I mean very clear, and we have 121 00:05:58,480 --> 00:06:01,520 Speaker 1: done the same thing since over the past two years. 122 00:06:03,040 --> 00:06:06,400 Speaker 1: We have a lower exposure to franch assets even like 123 00:06:06,920 --> 00:06:09,960 Speaker 1: very strong companies let's say the luxury sector is obviously 124 00:06:10,200 --> 00:06:13,960 Speaker 1: strong in France. Very nice companies, but we see clearly 125 00:06:14,120 --> 00:06:18,280 Speaker 1: that all the French are sets are not performing quite well, 126 00:06:18,360 --> 00:06:21,359 Speaker 1: especially compared with over open A sets. And when I 127 00:06:21,480 --> 00:06:25,960 Speaker 1: discuss with other companies, even insurance companies, French banks and 128 00:06:25,960 --> 00:06:28,000 Speaker 1: so on, we are all doing the same thing because 129 00:06:28,040 --> 00:06:30,320 Speaker 1: we see it as a tail risk for the market. 130 00:06:30,640 --> 00:06:32,479 Speaker 2: Okay, Christopher Dan, but great to have you with us. 131 00:06:32,480 --> 00:06:34,520 Speaker 2: Thanks very much for joining us em Paris this morning. 132 00:06:34,560 --> 00:06:37,120 Speaker 2: Senior investment manager at Pectae Asset Management