With Stéphane Boujnah, CEO of Euronext. Good morning, thank you for being with us this morning. The Paris market is lagging behind its European and American neighbors. How do you explain that when tensions are global?
I'm not sure we can say that the Paris market is lagging. And when you say lagging, you are undoubtedly referring to the CAC 40 index, which you consider to be progressing a bit less since the beginning of the year than US values. You know, American indices are very largely influenced by 7 or 8 global companies that have the ability to set prices and collect money because they sell licenses to the rest of the planet. And Europe sends 260 billion euros every year in the form of licenses that we pay for our mobile phones, our operating systems, our search engines. So you have companies in the United States that have a specific characteristic, which is that they collect a sort of tax, a sort of levy on the rest of the planet. Well, they pull the indices depending on the appetite for the prospect of artificial intelligence in particular. Conversely, isn't France a bit weighed down by a few large globalized values? And I'm thinking specifically of luxury.
No, I think that still weighs a lot in the index. Yes, in the index, if you are talking about the French index, indeed, there is a strong presence of luxury. If you are talking about European indices, it is less the case. And I believe that above all, we must understand that most French-listed companies have a remarkable performance, notably because they are diversified and globalized. The real question we need to ask is not whether there is a performance gap between the French index or European indices and American indices. The real fundamental question is whether there is a gap between the performance of French and European indices and the evolution of the rest of the economy that is not listed. The real source of concern should not be the gap between indices. The real source of concern is the gap between large global companies that are performing rather well, publishing rather excellent results, and medium-sized companies or SMEs that are encountering difficulties linked first and foremost to energy prices.
Are the French markets playing the role of an early warning system, particularly regarding French debt?
Yes. Well, the debt market is something very different. Today, the real point of alert, the point of attention, is sovereign debt, the price at which the state borrows. Today, Friday evening, the French Republic is borrowing at 10 years at 4.45%. That is very considerable. It is very considerable because, as you know, the maturities of our debt are on average 8, 8.5, 9 years. This means that we must now refinance each year maturities that were subscribed at a time when rates were at 0, 1, or 2%. So the interest rates on our debt are increasing at a time when our stock of debt, which is very large, is also increasing because of our deficits.
So that worries you for the evolution of the stock markets?
Of course, because if you want, at a time when central bank key rates are rising due to inflation, when sovereign debt interest rates in the US are also rising and were once the global risk-free rate. When you have the people we were talking about a few minutes ago, the famous hyperscalers who are investing heavily in artificial intelligence and who are borrowing with high yields, you have a competition from large issuers that means there is a strong trend towards rising rates. Indeed, this rise in rates will eventually weigh on the balance sheets of those who are highly indebted, and therefore profitability can be weakened and affected. And independently of the classic rotation between debt and equities, you can have pressure on corporate performance and therefore a very deep slowdown in growth.
Yeah. A corporate financing crisis.
No, we are not there. We are not in a financing crisis. We are just in a system where there will be a real trickle-down of the rise in rates across all companies.
And so this tension in the bond markets, it worries you.
It doesn't worry me. It doesn't worry me. Bond markets will remain liquid, but the cost of debt will increase for everyone. You know, in France we have this very particular characteristic that somewhat clouds our judgment. Households, when they borrow to buy their home, when they can, about one in two households owns their home, they borrow at a fixed rate. That is very exceptional. In the rest of Europe, they borrow at variable rates. In the rest of Europe, when rates rise, your monthly payments to repay your home increase. In France, when rates rise, it's the bank's problem because you borrowed at a fixed rate. And so, households are quite sheltered from the rise in interest rates because they borrow at a fixed rate. The reality for companies is very different, and so there will be a trickle-down of the rise in interest rates to the balance sheets of companies, and obviously those that are very indebted will suffer this increase in rates in their charges more significantly than those that are less indebted. And among the most indebted organizations in the country, there is the Republic, which is in a state of objective of this yield heading towards 100 billion in debt charges soon.
