Speaker 1: Bloomberg Audio Studios, podcasts, radio news, thegoing.
Speaker 2: Prime Minister Sebastian Economy, meeting the Socialist Party this morning,
Speaker 2: then the Greens and the Communist Party as well as
Speaker 2: he's trying to discuss or build support for his budget
Speaker 2: plans as we came down to that deadline. Though, I
Speaker 2: want to get the perspective of Christopher Denbeck, senior investment
Speaker 2: manager at Pecta Asset Management. Chris, great to see you,
Speaker 2: Thanks very much for joining us this morning. From your
Speaker 2: point of view, I mean, how do you view this
Speaker 2: uncertainty in terms of framing for French assets.
Speaker 1: Well, I don't see it. There's a big risk. I
Speaker 1: think over the past two years we have seen that
Speaker 1: the French economy is not performing quite well, mostly due
Speaker 1: to the publical situation. We all expect uncertainty, political uncertainty.
Speaker 1: We lost at least until the next prison election, so
Speaker 1: we have until twenty twenty seven. I'm very pessimistic regarding
Speaker 1: the outcome of the negotiation tonight. I have some contacts
Speaker 1: in the government and apparently the bet is that love
Speaker 1: a new election in November potentially, But even if this happened,
Speaker 1: I don't think it will solve the situation. So for
Speaker 1: most investors or even when you talk with companies, anyone
Speaker 1: knows that investituation won't get better anytime soon, so we
Speaker 1: are getting used to this. I had recently talks with
Speaker 1: French investors, but on French debt in quite a large quantity.
Speaker 1: What they told me is we're not afraid at all
Speaker 1: because basically, over the past two years have reduced the
Speaker 1: exposure to French assets. So everything has already happened. And
Speaker 1: I guess I'm not only one pessimistic, but most of
Speaker 1: the French business community is and nowadays.
Speaker 2: So I mean, is there a worst case scenario then
Speaker 2: if things play out? I mean, does having the Soucialist
Speaker 2: party in the government now and not elections? Is that
Speaker 2: better than having elections manivester point of view? I mean,
Speaker 2: how do you look at the various scenarios?
Speaker 1: Well, from an investor note of view, I think the
Speaker 1: best is to have a new election or a technical government.
Speaker 1: We're all quite afraid if we have a socialist or
Speaker 1: far left to government. Obviously, I think one of the
Speaker 1: biggest issue we've left is that the consider of the
Speaker 1: French economy is in quite good chap. But as a
Speaker 1: retul fact. If you look at economic activity, we might
Speaker 1: be around the open five percent this year, and they
Speaker 1: want to increase taxation. You know, you have all the
Speaker 1: discussion how to increase much more taxation. I don't think
Speaker 1: this is the right way to deal with the situation.
Speaker 1: But if we have left government, we are without obvious
Speaker 1: support from the far left. I think it's not good
Speaker 1: for the economy. So most of the investors are quite
Speaker 1: a free on taxation. Liveral is already quite high in France.
Speaker 2: One of the key comments we've been watching this morning
Speaker 2: is some former prime minister Elizabeth Bond, someone who brought
Speaker 2: the pension reforms through Parliament when she was Prime minister.
Speaker 2: She's now saying that she could be in favor of
Speaker 2: suspending that reform. I mean, what's your view on that proposal.
Speaker 1: Well, it's a complete nonsense. Nowadays we have in terms
Speaker 1: of public deficit it will be around five point four
Speaker 1: percent of GDP, which is one of the worst in
Speaker 1: the Open Union. So let's say that you suspend very farm.
Speaker 1: You need to find, according to my assessment, you need
Speaker 1: to find every year between twenty and thirty billion year
Speaker 1: or more. So, where do you find it. I mean,
Speaker 1: we're enable evant to reduce the deficit at all. So
Speaker 1: if you suspend very formally for political purpose, the issue
Speaker 1: is that at the end of the day, your deficit
Speaker 1: will keep increasing. So yes, clearly live investors or you
Speaker 1: don't have speculative attack against the French debt. But right
Speaker 1: now we don't know if it will happen. You know,
Speaker 1: in the bond market, everything can fold down very fast,
Speaker 1: so nowadays is very quiet. I expect it will remain
Speaker 1: like that. But let's say that we susponn the bone
Speaker 1: of the punsion reform. No one knows what's going to
Speaker 1: happen on the bond market, so you could have speculative
Speaker 1: attacks against French assets. So that's that's why I think
Speaker 1: three not wise.
Speaker 2: What sort of move? What that mean in terms of
Speaker 2: yields or the spad Germany.
Speaker 1: Well, let's say we're around for the ten year bond
Speaker 1: market for the French government bones we're around three point
Speaker 1: five three points seven percent film, which might be the top.
Speaker 1: If we jump around four percent, it will be already
Speaker 1: quite challenging, you know. I mean, we have seen it
Speaker 1: for Greece, and I don't compare friends with grace, but
Speaker 1: from one moment to another, almost over night, everything can
Speaker 1: fold on. So that's why I think we need to
Speaker 1: be very careful. And obviously foreign investors we don't look
Speaker 1: at all the reforms that France is implementing, but we
Speaker 1: all know that we need to be very wise regarding
Speaker 1: the pension reform. So we need to be careful. And
Speaker 1: if we suspend it, well, let's say, let's be very transparent.
Speaker 1: It's not the suspension. It means that we will just
Speaker 1: console the reform, so we will have sooner or later
Speaker 1: on new debate about it. So it's not right solution
Speaker 1: to deal with the situation. And I think from a
Speaker 1: political point of view, it was not already enough to
Speaker 1: do this reform, so we cannot get back to this.
Speaker 2: Is that is the spending person one of the biggest risks,
Speaker 2: the fascal lightlub.
Speaker 1: Now yes, I mean if you look from twenty to seventeen,
Speaker 1: half of inciece of public debt is only due to
Speaker 1: the pension, so we need to deal with that. It's
Speaker 1: not an what we have done over past few years,
Speaker 1: so sooner or later we'll need to deal with that.
Speaker 1: If we have left government, obviously we won't deal with
Speaker 1: the situation because we left concider that there is no
Speaker 1: pension reform issue. So what is striking is that for
Speaker 1: some politician in France nowadays it's like France is a
Speaker 1: complete is a country where all the rules of economics
Speaker 1: does not apply. All other countries are nowadays implementing pension reform.
Speaker 1: I think in Denmark, and you retire at seventeen years old.
Speaker 1: Nowadays in France you want to get back to sixty
Speaker 1: years solds It does not make sense and sooner or
Speaker 1: letter you will pay it. You will pay it because
Speaker 1: you will have higher cost of borrowing for the states,
Speaker 1: but also for all the companies, or you can have,
Speaker 1: in the worst case scenario, speculative attack against franch assets.
Speaker 2: So how do you try the next eighteen months and
Speaker 2: franch assets that roughly how long has left on Themania
Speaker 2: Marcan's presidency at the moment we assume he will serve
Speaker 2: to the end of his term.
Speaker 1: How do very I mean very clear, and we have
Speaker 1: done the same thing since over the past two years.
Speaker 1: We have a lower exposure to franch assets even like
Speaker 1: very strong companies let's say the luxury sector is obviously
Speaker 1: strong in France. Very nice companies, but we see clearly
Speaker 1: that all the French are sets are not performing quite well,
Speaker 1: especially compared with over open A sets. And when I
Speaker 1: discuss with other companies, even insurance companies, French banks and
Speaker 1: so on, we are all doing the same thing because
Speaker 1: we see it as a tail risk for the market.
Speaker 2: Okay, Christopher Dan, but great to have you with us.
Speaker 2: Thanks very much for joining us em Paris this morning.
Speaker 2: Senior investment manager at Pectae Asset Management