Everything you wanted to know about the CAC 40 in 10 questions
Posted on Nov 3, 2021, 6:30 amUpdated Nov 3, 2021, 8:58 am
1. What is CAC 40?
This is the benchmark index of the Paris Stock Exchange. The CAC 40 is an abbreviation for the “continuously supported quotation” of the 40 largest stocks listed in Paris. Enrollment began on June 15, 1988, but the threshold was set on December 31, 1987, based on 1,000 enrollments.
The CAC is controlled by the Euronext stockbroker, but does not decide on its composition. This responsibility falls to the Scientific Council of the indices which consists of twelve independent experts, they are not employees of Euronext, nor are they paid. We also do not know the names of members to protect them from outside requests. The board meets four times a year.
2. Does the CAC 40 represent the French economy?
Although the Parisian index is often used to show the good or bad of the French economy, that is not the purpose of the index. The CAC 40 brings together the largest companies listed on the Paris Stock Exchange, in terms of value and revenue, whether they derive most of their income from France or elsewhere.
Market experts believe that small and medium-term indicators, such as the SBF 120 in France, are a good indicator of the economic situation.
The CAC 40 has grown by an average of 5.7% per year since its inception
3. How much does the CAC 40 bring in?
Savers who invest in the stock market earn money in two ways: they receive a dividend every year, but they can also collect a large profit by reselling shares that have appreciated in value. On the Paris Stock Exchange, the average interest rate is just over 3% over time.
The CAC 40 index, on the other hand, has risen by an average of 5.7% per year since its inception. An investor who could have bet 1,000 euros on the CAC 40 when it was created and traded today, after a 367% increase over more than 30 years, would have recorded a huge profit of 3,670 euros. By including the repeated profits as the CAC 40 Gross Return does, the increase reached 1,868% (9.25% per year on average), making a total profit of 18,680 euros.
4. Considering the dividend yield, when did the CAC 40 break its record?
There are two main categories of market share. On the one hand, traditional indices such as the S & P 500 or the CAC 40, are calculated from price changes only. And on the other hand, those who consider the big profits that are given and reinvested, like the German DAX. The performance of this type of index is obviously driven by dividends. This explains why the CAC 40 often suffers (not this year) compared to the DAX.
The CAC 40 Gross Return, created in 1994, takes into account earnings and makes comparisons easier. The index reached its first peak in 2000 at 9,946.25 points, then the second peak in 2007 at 10,707.8 points. This record was broken in 2015 and the index is now trading at an all-time high of around 19,700, up 18% from its pre-pandemic peak.
5. Who are the owners of the CAC 40?
These figures are from the end of 2018. But the situation is still the same. The largest shareholders of the CAC 40 are asset managers (25% of CAC 40 shareholders). American giants BlackRock and Vanguard each have 2.3%. Next come families and founders (14.5%).
The largest shareholder in the CAC 40 at the end of 2018 was the Arnault family group, which has a stake in LVMH (owner of Les Echos) that represents 4.3% of the Parisian index. Since then, the value of the top group has outperformed the CAC 40 as a whole. Individual shareholders tended to decrease between the end of 2012 and the end of 2018: their weight dropped from 9.4% to 5.7%. However, the new interest of savers in the stock market since the pandemic was able to stop this decline.
6. How many foreign stocks are in the CAC 40?
Not all CAC 40 companies have their registered office in France. It is not necessary to include the index. Since the exit of Nokia in 2017, LafargeHolcim in 2018, TechnipFMC in early 2020, and Atos recently, five of them have their decision making centers outside of France. These are Airbus (Amsterdam), which is also a member of the DAX 40, ArcelorMittal (Luxembourg), Stellantis, due to the merger between the PSA group and Fiat Chrysler Automobiles (Amsterdam), STMicroelectronics (Geneva, but under Dutch law) and Eurofins Scientific (Luxembourg).
All the rest have their headquarters in the Paris region except Michelin, which has remained faithful to its historic Clermont-Ferrand, and Legrand, which is based in Limoges.
7. What is the share of global operations of the CAC 40 giants?
In 2020, the weight of international business in the products of the CAC 40 companies was 78%, compared to 75% in 2019. The sign that the CAC 40 is, and above all, the flag of France abroad.
LVMH, Kering and Hermès rely more than ever on the appetite of Chinese consumers, while Dassault Systèmes sells mainly in the United States. The rise in the prices of these stocks since the crisis suggests their ability to benefit from the rapid recovery of their capital markets.
8. Is the CAC 40 “green”?
The Paris Bourse still has a long way to go. Although it does a little better than other places, very few companies are carbon neutral. And yet… BNP Paribas can thank you for being part of this “happy few”, the bank is neutral in its operations, not on all of its pages, because it is burdened with high costs of fossil fuels.
But according to a recent EcoAct report, large French companies are increasingly demanding the environmental Holy Grail of carbon neutrality: 76% of French companies in the Eurostoxx 50 have committed. Two CAC 40 companies, Schneider and Kering, are among the top 10 performers in Europe, while L’Oréal and Sanofi are in the top 20. Banks are preparing to withdraw from coal, BNP Paribas is turning its back on unconventional hydrocarbons , insurance AXA wants to connect assets its is the Paris Agreement, and TotalEnergies is investing in renewables and aims to be net neutral by 2050 in its European operations.
9. Does the 2022 presidential election represent a risk to the CAC 40?
The performance of the Parisian market depends above all on the health of the French economy. Although historically, stock market indicators have improved more under left-wing governments than under right-wing ones. Election season can be volatile in the stock market due to exchange rate risk, shocks or sudden changes in economic policy.
When François Mitterrand won in 1981 – the CAC 40 had never existed – the Paris Stock Exchange fell 17% before rising again. In the last presidential election, Marine Le Pen’s rise in the polls weighed less on the stock market than on the bond market. The interest rate differential between France and Germany widened in the weeks before the election: the exit from the euro that Le Pen wanted affected the value of French debt.
10. How would you describe the return of people to the stock market?
In two years, 800,000 new traders will take their first steps on the markets, stock traders with smaller portfolios than the existing smaller ones, according to figures from the Financial Markets Authority. This new interest started with the IPO of La Française des Jeux in November 2019. More than 500,000 people participated.
The pandemic and the savings it has brought have given investors a boost, bringing their number to 1.34 million in 2020. This continued at the beginning of the year, with 70,000 investors in the first quarter. In the middle of 2020, the share of public transactions reached about 7% against 2% in 2019, before returning to about 5% at the moment, according to Euronext research. The participation of the individual is small compared to the United States, where it accounts for about 30% of the world trade.