Short CAC 40 with Capital Protection

The economic situation in France is a cause for concern due to a heavy debt burden amidst tightening monetary conditions. The country is facing a “debt trap” scenario, where the cost of servicing accumulated obligations begins to crowd out essential government spending. France’s public debt has surpassed €3.5 trillion, with the debt-toGDP ratio approaching 119–120%—an alltime high. The budget deficit consistently hovers around 5% of GDP or higher (well above the EU target of 3%), forcing Paris to raise massive amounts of liquidity from the markets annually.

Consequently, we foresee risks of increasing borrowing costs, which will weigh on corporate operating results and, by extension, valuations. Although major companies within the index generate 70–80% of their revenue outside France, we believe the index will remain under pressure due to the likelihood of an economic crisis.

The CAC 40 is France’s primary stock market index, tracking the performance of the 40 largest companies – by market capitalization and liquidity – listed on the Euronext Paris exchange. The combined market capitalization of the corporations included in the index exceeds €2.5 trillion. Historically, the CAC 40 has rested on three major pillars:

• Luxury & Consumer Discretionary
• Industrial & Energy
• Financials & Healthcare

The index is subject to volatility driven by parliamentary budget debates in France, EU-wide regulatory initiatives, and tax changes affecting large businesses.

The pressure is already showing in markets, but the key tests are still ahead. Parliament starts debating the 2027 budget on 13 October, with a crucial vote on its revenue measures on 20 October, followed by Moody’s review of France on 23 October. With the French-German bond spread now above 150 basis points and the ECB unlikely to intervene under current conditions, a failed budget vote or downgrade could push borrowing costs higher and put further pressure on the CAC 40.