Despite a rowdy session this Tuesday, October 12, theand Cac 40 continues to use 5,000 points, after falling at 3,632 points and March. How to analyze this good performance of prices, while activity is declining? This paradox can be explained in particular by the action of the European Central Bank. Here’s why.
How is the Paris Bourse doing?
It is gradually regaining the ground lost since its collapse at the start of confinement. The Cac 40, the main index of the Paris Bourse, peaked at 6,111 points in February, before plunging to 3,632 points in March. Since then, it has started to rise again. The index, which includes the forty most emblematic French companies, is now flirting with 5,000 points. This good price performance seems paradoxical in a context of unprecedented recession.
Why this rebound in the midst of the economic slump?
One of the major reasons lies in the action of the European Central Bank. The guardian angel who watches over the nineteen countries that have adopted the euro creates massive amounts of money to buy back the debts of the States. It melts interest rates. So much so that France borrows over ten years at 0%. It can therefore take on a lot of debt to cope with the epidemic without increasing its financial costs.
But these low rates don’t do the business of lenders. As government bonds are scarce and yield nothing, investors are turning to buying stocks, even if it is riskier. The choice to invest the available money is limited,
analysis Jean-Louis Mourier, economist at the stock broker Aurel BGC.As a result, demand for stocks is increasing and prices are rising.
Where does this money to invest come from?
It is household savings,
continues the economist. That of American retirees, but also German and Dutch. Or that of life insurance holders in France. From now on, to open a contract, insurers most often impose to invest part in less secure investments.
Is this a phenomenon specific to Europe?
No, it is global. The US central bank is also turning its dollar board. To the same causes, the same effects. In the United States, stock market indices are close to all-time highs.
What consequences?
The rise in the stock market widens inequalities. Those who benefit are the shareholders. However, they are few.
The Hexagon has only 3.2 million individual shareholders. And in the world, the cumulative fortune of 2,189 billionaires (10,200 billion dollars, or 8,650 billion euros) has reached a peak thanks to the rebound of the markets, according to UBS / PWC.
But the good performance of the markets does not only benefit a handful of privileged people. It also helps support the real economy. By putting part of their capital on the stock market, SMEs (small and medium-sized enterprises) obtain the financing necessary for their development.
Will this increase continue?
After a stir on Monday October 12, the Cac 40 fell back on Tuesday 13. The markets are worried about a possible turn of the sanitary screw which could be announced this Wednesday October 14 by Emmanuel Macron. Not sure, however, that the trend is permanently reversed. The markets anticipate a clear recovery in activity as soon as the epidemic is contained.
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