While many investors are shying away from France amid political turmoil and economic uncertainty, one fund manager is heading the other way. Chris Hiorns, who runs EdenTree's roughly £365 million Sustainable European Equity Fund, has been adding to his French holdings, including a new position in real estate company Gecina and increased stakes in property group Covivio, water-and-waste utility Veolia, and grocer Carrefour.
In a note published Tuesday, Hiorns described France's political and economic outlook as “somewhat bleak,” yet he's betting that the market's pessimism has gone too far. The fund, part of EdenTree's about £1 billion in assets under management, already holds shares in drugmaker Sanofi and tire maker Michelin, and Hiorns is now deepening his exposure to the country.
A contrarian, valuation-led move
Hiorns' strategy is a classic contrarian play. When investors get nervous about a country, they often mark down a broad swath of its stocks together, regardless of how stable each individual business might be. This can create opportunities for investors who believe the market is overreacting to political noise.
France has been in the spotlight for months due to political instability, including a hung parliament and ongoing budget disputes. The uncertainty has weighed on French equities, with the CAC 40 index lagging many of its European peers. But Hiorns argues that the companies he's buying are resilient enough to ride out the turbulence, and that their current prices already reflect a lot of the bad news.
“These are businesses with strong fundamentals, and the market is treating them as if they're much riskier than they actually are,” Hiorns said in the note. “If sentiment improves, even a little, these stocks could see a meaningful re-rating.”
What this means for investors
Political uncertainty can raise a country's “risk premium,” meaning investors demand a higher return to hold its assets. In practice, this often shows up as investors using a higher discount rate when valuing future cash flows, which tends to compress valuation multiples across the market. That's why Hiorns' picks matter: if France's perceived risk later normalizes, Gecina, Covivio, Veolia, and Carrefour could benefit mainly through a re-rating rather than a sudden jump in earnings. But if the risk premium keeps creeping higher, those same multiples can stay under pressure even if the companies execute well.
For everyday investors, this highlights an important lesson: political headlines can move markets, but they don't always change the underlying value of a company. A stock can be a good business and still fall in price if investors demand a higher risk premium. Conversely, a stock can rise even without an improvement in profits if sentiment shifts.
Hiorns' approach also underscores the value of diversification. By spreading bets across different sectors—real estate, utilities, retail, healthcare, and manufacturing—he's not relying on any single company or sector to carry the fund. That's a strategy that can help cushion against unexpected shocks.
Risks and watchpoints
Of course, contrarian investing carries risks. If France's political situation worsens, or if the economy deteriorates more than expected, these stocks could fall further. Hiorns acknowledges the challenges, but he believes the potential upside outweighs the downside.
Investors will be watching French political developments closely, as well as any signs of economic stabilization. The outcome of budget negotiations and the government's ability to pass reforms will be key. For now, Hiorns is comfortable taking the other side of the trade.
As French curfews deepen Europe's market jitters, the broader European market has been volatile. But Hiorns' move suggests that some professional investors see opportunity in the chaos. Whether he's early or wrong remains to be seen, but his bet is a reminder that market sentiment can be fickle—and that sometimes the best time to buy is when others are selling.
