The crisis of the French exchange: how COVID-19 will affect the savings of citizens
General stock market trends
For the first time in history, a healthcare crisis has collapsed the stock market and caused such negative consequences in the financial world. Over the month, CAC 40, France's most important stock index, fell 37% from its highest value. Even before the pandemic, the stock market in France experienced a downturn. Even after the relative success of the initial public offering of Frances de Gé, the national operator of lottery games, in November 2019, the number of their shareholders slightly exceeded 3 million. Although back in 2006, this figure reached 7 million people. Portfolios of shares of individual-depositors lost from 20% to 40% of profit since the beginning of the year. The total fall in stock markets, in its turn, will affect the personal part of the French savings that they invested through shared life insurance. And this, for a minute, is 1.789 billion euros of payments!
The largest investment of the French people
From August to December 2019, the French in shared life insurance preferred investment in various types of media. According to data provided by the French Federation of Insurance Communities, the amount of investment in the media amounted to almost 35% of the total fee. This growth is also due to appeals by insurers and bankers to invest in this particular sphere. They, in turn, were guided by low interest rates, which affect the income of the fund.
As soon as the market collapsed, investors who just recently invested in the media seduced to reorient themselves to products and companies with guaranteed capital. In Euro funds, for example. Such a step would make it possible to capitalize annually received interest. But if the crisis lasts a long time, not a single sector is safe from the fact that people will start to take back part, or even all of their savings. This outflow would definitely weaken the insurers. However, the French are not in hurry to take any actions with their own savings. Investment companies acknowledge that their investors are more concerned about their own health than well-being. There is no panic, which was in 1987, for example.
If not for the global crisis, the French economy could continue to increase its so-called precautionary savings. Last autumn, amount, which were deposited on current accounts or stored in cash, reached 603.8 billion euros. Although ten years ago this figure was almost 2 times less, according to the Bank de France. And the outstanding amount on the livery savings book in January exceeded 300 billion euros, which is also a record level. All this affects the fall of stock indices.
French economic downturn
The French National Institute for Statistics and Economic Exploration (INSEE), led by its CEO Jean-Luc Taveneux, said in a report that the state’s economic activity had fallen by 35%. Although he admits that it is not entirely correct to give any estimates to what is happening, since they will be “ridiculous” in the current situation, there are no exact initial figures that could serve as an objective basis for calculations. And the published information is even more pessimistic than what other forecasting institutions could provide. Two months of quarantine for France will cause unprecedented damage - a loss of 24 points of quarterly GDP and 6 points of annual is forecasted.
And the Central Bank of France published its own statistics - the country's GDP for the first quarter fell by as much as 6%. This is the worst indicator of the country since the Second World War. According to the estimates of the Central Bank, every two weeks of quarantine cost about 1.5% of GDP and 1% of the state deficit for France. Coronavirus has hit the industry of trade, transport, hotel and restaurant business most of all. Together, all of these sectors account for about 55% of French GDP. And today, the Frenchmen began to save significantly - their spending fell by 35%. Moreover, a third of residents has remained on unemployment benefits, and another third works in a remote format. With the closure of stores, the demand for clothing and vehicles fell to almost zero. And the country's production capacities are only half used.
Coronavirus and the French real estate sector
Despite the fact that the economic indicators of all sectors are deteriorating sharply, real estate, which is one of the most stable niches, remains "afloat" now. In recent years, many insurers have offered their equity insurance clients to invest in civilian real estate investment (SCPI) companies. It was a great alternative to the Euro-fund, and with higher profitability. Investors bring assets to the management company at SCPI. This company, in its turn, buys the property that is leased, then the funds which are collected from the lease, and then distributes the amount of dividends of depositors on the shares that they own.
8.6 billion euros is the record amount of life insurance investments that the real estate and construction sector received in 2019. But today, experts, in particular Jean-Luc Tavernier, do not recommend making deposits in the “stone”, as companies focus mainly on shopping centers and offices. That is why coronavirus can seriously undermine the stability of the niche.
Although Frederic Puzin, president of one of these companies, said that at the moment only 6% of their tenants indicated that they had difficulty paying, and asked for a delay of 2-4 months. If this interest rate fluctuated at the level of 20%, then the profitability of the enterprise would decrease from six planned percent to 4.6-4.5%. Other SCPIs that have already dropped below 4% may be in a much tense situation.