You are here: Home - Investing -

France’s credit rating downgraded

0
Written by:
20/11/2012
Moody's has stripped France of its AAA credit rating, reducing it by one notch to Aa1.
France’s credit rating downgraded

The ratings agency maintained the negative outlook it had placed on the country’s rating in February.

The agency said the country’s ability to withstand future euro area shocks is diminishing as its own economic profile deteriorates.

At the same time, its banks remain reliant on wholesale funding and exposed to other eurozone nations, while France’s own credit exposure to the crisis has been increasing as a result of eurozone guarantees for peripheral nations, Moody’s added.

The decision leaves Fitch as the only major ratings agency to rate France as an AAA credit, and follows Standard and Poor’s January decision to remove its own AAA rating for France, and comes as a growing number of investors become more wary of the perception of the nation as a stronger member of the eurozone.

Fund manager William Littlewood of Artemis said:

“French labour costs and high regulation make it badly placed to compete in the world, but the new government’s policies will make its highly taxed and regulated economy even more sclerotic. Unemployment has crept up over 10% and the trade deficit – which was a surplus ten yearsago – continues to widen.

“Given its high levels of debt and a large and ever more interventionist government, we believe France will increasingly be compared with the weaker southern European countries.”

Last month Carmignac Gestion founder Edouard Carmignac suggested the country could be forced to overhaul its government as soon as the spring and suggested business activity was about to “plummet”. October also saw PIMCO’s Bill Gross label France as one of his “rogue gallery of debtors”.

Legal & General’s Michael Canoy, manager of the group’s £1.3bn Fixed Income trust, has moved underweight France – preferring Italian credit – in the belief the country will not meet its 0.8% growth target or 3.3% deficit target for 2013.

Elsewhere Threadneedle’s Matthew Cobon, manager of its Absolute Return Bond fund, switched a long France CDS position into a short French bonds position in September, believing French economic fundamentals are yet to be priced in.

There are some positives for France: Q3 GDP came in ahead of estimates at 0.2%, the second successive quarter in which growth had beaten expectations.

Data from Markit, meanwhile, shows while institutional investors appear to be shying away from using long-dated French debt as collateral, investors have not yet turned wholly negative on the nation.

Short interest in French equities, while rising, remains “quite low” at 3.3% for large caps, Markit added.

Tag Box

Debt

Pension

Spending

Financial fitness

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
2225916-george-osborne-uk-chancellor-exchequer
Chancellor looks to up tax on pensions of rich

George Osborne is considering a new tax raid on the pension contributions of richer voters, after rejecting the idea of...

Close