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France: Everybody's happy - for now

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Any market panic surrounding the arrival of the socialist government in France, is unfounded, say in-vestment managers - for the time being anyway. But while all is presently calm on the surface, market watchers are still holding their breath for the summer budget.

Jean-Francois de Laulanie, director of investment strategy, Société Générale AM, Paris does not fear any im-mediate drastic changes. There is no big change in economic policy compared to what was expected," he says. "There is a big gap between what they said before the election and now, so the market has not reacted too badly."

And while any changes in government economic policy cannot be dismissed completely, de Laulanie only ex-pects those which do occur to be "very moderate".

A possible decrease in VAT can only be "good for consumption" says Jean-Marie Bourdouis, general manager at Tocqueville AM. "The market is not extremely worried about it" he says, "40% of the largest French capitalisation are held by outsiders, notably Americans and they do not seem to have backed out."

However, as he points out, the market is by no means cheap at the moment and equities have probably yield-ed most if not all of their 1997 returns. And while the market may be slightly more vol-atile than it has been recently, there is not likely to be any high drama. "We might go up 5%", he says.

The bond market also pro-mises to be anything but ex-citing with a prediction by de Laulanie of "around 5.6%" on 10-year bonds and 6% as the maximum level of interest rates by year end. And even though investors can find more worthwhile investments elsewhere, de Laulanie says there is still a bit to be gained by staying in. "We don't advise investors to get out of the market - it is still interesting to have bonds, but for the foreign investor there are probably better things."

Alain Robidel financial dir-ector of pension fund, Mederic Prévoyance is slightly less relaxed over the state of the market, notably seeing the uncertainty over government policy as a major risk.

In terms of bonds, he sees little significant change with interest rates remaing stable and in agreement with de Laulanie, he sees the long bond rate remaining at 5.6% for the foreseeable future.

On the equity side however, he describes himself as a little bullish and sees more potential in the market than de Laulanie and Bourdouis, off-ering disappointing past performance as justification of an upswing. "This market, has much more potential than other European ones because its performance has been less spectacular than others."

Within the market, he thinks that there should be a reappraisal of financial stock, but de Laulanie thinks it might be too late. "The problem now is that many financial stocks now are very low so even though many advisers and financial papers say get out of financials in France, it is too late is our advice."

Both, however are united in their uncertainty over the consumer stocks, which, says Robidel, might not represent good value despite being "very high at the moment."

And while Robidel also re-mains negative on distribution, Bourdouis is keeping a "very keen" eye on the sector, alongside "individual cases" in the industrial sectors. Rachel Oliver"

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