Christopher Dembik Talks France's Investor Mood

Summary

Podcast Summary: Bloomberg Talks

Episode: Christopher Dembik Talks France's Investor Mood
Date: October 8, 2025
Host: Bloomberg
Guest: Christopher Dembik, Senior Investment Manager at Pictet Asset Management

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Overview

This episode centers on France's current political and economic uncertainty and its implications for investors. Christopher Dembik, a seasoned investment manager, offers his candid assessment of the evolving investor sentiment toward French assets. Discussions touch on the potential outcomes of government negotiations, the impact of suspending pension reforms, fiscal risks ahead, and strategic approaches for navigating French markets.

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Key Discussion Points and Insights

1. France’s Political Uncertainty and Investor Mood

• Ongoing Instability: Dembik observes that persistent political uncertainty (expected at least until the 2027 presidential election) has already affected the business environment and weighed on French assets.
  • Quote: "We all expect uncertainty. Political uncertainty will last at least until the next presidential election. So we have until 2027." — Christopher Dembik [00:48]
• Investor Adjustment: Investors have responded by reducing their exposure to French debt; the diminished confidence is now “priced in.”
  • Quote: "What they told me is they are not afraid at all because basically over the past two years they have reduced the exposure to French assets. So everything has already happened." — Christopher Dembik [01:30]
• Pessimistic Outlook: Dembik suggests investors and the business community are not optimistic that the situation will improve soon.

2. Government Formation Scenarios

• New Elections vs. Left-Wing Government: Dembik believes new elections or a technical government would be preferred by investors. A socialist or far-left government is seen as risky due to proposed higher taxation and their economic optimism, which isn't shared by the market.
  • Quote: "We are all quite afraid if we have a socialist or far left government." — Christopher Dembik [02:09]
• Policy Concerns: He criticizes left parties for underestimating the country's economic struggles and for their inclination to raise taxes.
  • Quote: "One of the biggest issue with the left is that they consider the French economy is in quite good shape. But... we might be around 0.5% this year and they want to increase taxation... I don't think this is the Right way to deal with the situation." [02:16]

3. Pension Reform and Fiscal Sustainability

• Proposal to Suspend Pension Reform: Dembik strongly opposes former PM Élisabeth Borne’s suggestion to suspend recent pension reforms, calling it “complete nonsense.”
  • Quote: "If you suspend the reform only for political purpose, the issue is that at the end of the day your deficit will keep increasing." [03:30]
• Fiscal Impact: Without reform, France’s deficit (forecast at ~5.4% of GDP) will worsen, potentially triggering market concerns or even speculative attacks.
  • Quote: "We don't know if [a speculative attack] will happen. You know, in the bond market everything can fall down very fast." [03:45]
• Debt Dynamics: From 2017, half the increase in public debt comes from pensions. Dembik stresses that without reform, borrowing costs and the risk of crisis will rise.
  • Quote: "Half of increase of public debt is only due to the pension." [05:06]

4. Market Risks: Bonds and Yields

• Yield Spread Risks: French government 10-year bond yields are high (3.5–3.7%). If they reach 4%, it becomes “quite challenging,” reminiscent of bond market crises in countries like Greece.
  • Quote: "We are on 3.5, 3.7% which may be the top. If we jump around 4%, it will be already quite challenging." [04:08]
• Foreign Investor Anxiety: Market participants may react dramatically if reforms are reversed, threatening France’s financial stability.

5. Investment Strategy

• Reducing French Exposure: The prudent move over the last two years, says Dembik, has been to reduce exposure to French assets—including major corporate sectors like luxury goods.
  • Quote: "We have a lower exposure to French assets... all the French assets are not performing quite well, especially compared with overall assets." [06:14]
• Sector Agnosticism: Even high-performing sectors (e.g., luxury) aren’t immune; all French companies are being treated with increased caution.

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Notable Quotes and Memorable Moments

• "Most of the French business community is nowadays [pessimistic]." — Christopher Dembik [01:41]
• "If we have a left government, obviously we won't deal with the situation because the left consider that there is no pension reform issue." [05:14]
• "In Denmark and you go, you retire at 70 years old. Nowadays in France you want to get back to 60 years old. It does not make sense." [05:40]
• "You will pay it because you will have higher cost of borrowing for the States, but also for all the companies. Or you can have, in the worst case scenario, speculative attack against French assets." [05:51]

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Timestamps for Key Segments

• [00:48] Political uncertainty and impact on investor confidence
• [02:05] Scenarios for new governments and investor preferences
• [03:05] Reaction to proposals for suspending pension reform
• [04:05] French bond market yields and risks
• [05:05] Fiscal sustainability and the role of pensions
• [06:12] Investment strategy for French assets

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Conclusion

Christopher Dembik provides a sobering assessment of France's fiscal and political risks, urging caution in light of persistent uncertainty. Investors have already adjusted by reducing exposure, and, unless substantial reforms proceed, French assets are likely to face continued headwinds. The warning is clear: policy missteps, particularly around pensions and fiscal discipline, could quickly escalate into broader market turmoil.

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Transcript

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[Interviewer]

News the outgoing Prime Minister Sebastian Laconu meeting the Socialist Party this morning, then the Greens and the Communist Party as well as he's trying to discuss or build support for his budget plans. As we count down to that deadline though, I want to get the perspective of Christopher Dembeck, Senior Investment Manager at Picday Asset Management. Chris, great to see you. Thanks very much for joining us this morning. From your point of view, I mean, how do you view this uncertainty in terms of framing for French assets?

[Christopher Denby]

Well, I don't see it as a big risk. I think over the past two years we have seen that the French economy is not performing quite well, mostly due to the political situation. We all expect uncertainty. Political uncertainty will last at least until the next presidential election. So we have until 2027. I'm very pessimistic regarding the outcome of a negotiation tonight. I have some contacts in the government and apparently the bet is that we will have new election in November potentially. But even if this happen, I don't think it will solve the situation. So for most investors or even when you talk with companies, anyone knows that the situation won't get better anytime soon. So we are getting used to this. I had recently talks with French investors that own French debt in quite large quantity. What they told me is they are not afraid at all because basically over the past two years they have reduced the exposure to French assets. So everything has already happened. And I guess I'm not the only one pessimistic. But most of the French business community is nowadays.

[Interviewer]

So I mean is there a worst case scenario then if things play out? I mean does having the Socialist party in a government now and not elections, is that better than having elections? From an investor point of view, I mean, how do you look at the various scenarios?

[Christopher Denby]

Well, from an investor point of view, I think the best is to have new election or a technical government. We are all quite afraid if we have a socialist or far left government. Obviously I think one of the biggest issue with the left is that they consider the French economy is in quite good shape. But as a matter of fact if you look at economic activity we might be around 0.5% this year and they want to increase taxation. You know, you have all the discussion how to increase much more taxation. I don't think this is the Right way to deal with the situation. But if we have a left government, we've or without obvious support from the far left, I think it's not good for the economy. So most of investors are quite afraid on taxation level is already quite high in France.

[Interviewer]

One of the key comments we've been watching this morning is from former Prime Minister Elizabeth Bond, someone who, who brought the pension reforms through parliament when she was Prime Minister. She's now saying that she could be in favor of suspending that reform. I mean what, what's your view on that proposal?

[Christopher Denby]

Well, it's a complete nonsense. Nowadays we have in terms of public deficit, it will be around 5.4% of GDP, which is one of the worst in the European Union. So let's say that you suspend very far. You need to find, according to my assessment, you need to find every year between 20 and 30 billion euros more. So where do you find it? I mean we're unable even to reduce the deficit at all. So if you suspend the reform only for political purpose, the issue is that at the end of the day your deficit will keep increasing. So yes, clearly the investors or you don't have speculative attack against the French debt. But I know, we don't know if he will happen. You know, in the bond market everything can fall down very fast. So nowadays is very quiet. I expect it will remain like that. But let's say that we suspend the bond, the pension reform, no one knows what's going to happen on the bond market. So you could have speculative attacks against French assets. So that's, that's why I think it's really not wise.

[Interviewer]

What sort of move would that mean in terms of yields are the spread with Germany?

[Christopher Denby]

Well, let's say we're on the, for the 10 year bond market. For the French government bonds we are on 3.5, 3.7% which may be the top. If we jump around 4%, it will be already quite challenging. You know, I mean we have seen it for Greece and I don't compare France with Greece, but from one moment to another, almost overnight everything can fall down. So that's why I think we need to be very careful. And obviously foreign investors, we don't look at all the reforms that France is implementing, but we all know that we need to be very wise regarding the pension reform. So we need to be careful. And if we suspend it, well, let's say, let's be very transparent. It's not a suspension, it means that we will just cancel the reform. So we will have sooner or later a New debate about it. So it's not the right solution to deal with the situation. And I think from a political point of view, it was not already enough to do this reform. So we cannot get back to this.

[Interviewer]

Is the spending and the pension warm, the biggest risks, the fiscal outlook now?

[Christopher Denby]

Yes. I mean, if you look from 2017, half of increase of public debt is only due to the pension. So we need to deal with that. It's not enough what we have done over the past few years. So sooner or later we'll need to deal with that. If we have a left government, obviously we won't deal with the situation because the left consider that there is no pension reform issue. So what is striking is that for some politicians in France nowadays, it's like France is a complete. Is a country where all the rules of economics does not apply. All over countries are nowadays implementing pension reform. I think in Denmark and you go, you retire at 70 years old. Nowadays in France you want to get back to 60 years old. It does not make sense. And sooner or later you will pay it. You will pay it because you will have higher cost of borrowing for the States, but also for all the companies. Or you can have, in the worst case scenario, speculative attack against French assets.

[Interviewer]

So how do you trade the next 18 months in French assets? That's roughly how long is left in Emmanuel Macron's presidency at the moment we assume he will serve to the end of his term. How do you do it?

[Christopher Denby]

Very, I mean, very clear. And we have done the same thing since over the past two years. We have a lower exposure to French assets. Even like very strong companies, let's say the luxury sector is obviously very strong in France, very nice companies. But we see clearly that all the French assets are not performing quite well, especially compared with overall assets. And when I discuss with other companies, even insurance companies, French banks and so on, they are all doing the same thing because we see it as a tail risk for the market.

[Interviewer]

Okay, Christopher Denby, great to have you with us. Thanks very much for joining us in Paris this morning. Senior Investment Manager at Pictay Asset Management.

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