Is the CAC 40 index a buy amid a slowdown in Europe and China?

July 18, 2023 04:57 PM AEST | By Invezz

Is the CAC 40 index a buy amid a slowdown in Europe and China? — Image source: Invezz

China concerns remain

The CAC 40 index started the year well, which saw it soar to an all-time high of €7,583 in June. This rally happened because of the rising hopes that the European economy will recover at fast pace this year. It also soared after China reopened its economy following last year’s Covid-19 lockdowns.

Recently, however, data shows that the two economies are faltering. According to Eurostat, the European economy contracted in the first quarter as the manufacturing sector faltered. Separate high-frequency data shows that the manufacturing PMI in the region has remained below 50 this year.

China, a leading market for many CAC 40 index constituents, has also slowed down. As I wrote here, data published by the National Bureau of Statistics showed that the country’s economy expanded by 6.3% in Q2. Retail sales rose gradually while the youth unemployment rate jumped to the highest level on record.

Watch here: https://www.youtube.com/embed/qNfUh6nExNQ?feature=oembed

China is an important market for French companies like Kering, Richmont, Hermes, and LVMH. All these companies make most of their money in the country, thanks to the fast-growing middle class.

Richemont, the parent company of Cartier and Van Cleef & Arpels, said that its Chinese business did well in Q2. However, the stock slumped by more than 10% on Monday after the company warned about a slowdown in the United States. Other luxury goods companies like Hermes, Kering, and LVMH also slumped.

Most CAC 40 index have gained this year. The best performers in the constituent this year are STMicroelectronics, Hermes, LVMH, Saint Gorban, Stellantis, and L’Oreal. The only laggards in the index are Teleperformance, TotalEnergies, Eurofins, and Worldline.

CAC 40 index forecast

CAC chart by TradingView

The daily chart shows that the CAC index has been in an overall bearish trend since May this year. It has formed a descending channel that is shown in black. The price is slightly below the upper side of the falling channel. It is consolidating at the 50-day and 25-day moving averages while the Stochastic Oscillator moved slightly below the overbought level.

Therefore, in the long term, the outlook for the index is bullish. But in the near term, it will likely drop and retest the lower side of the channel at around €7,000.

The post Is the CAC 40 index a buy amid a slowdown in Europe and China? appeared first on Invezz.

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