Happy New Year Everyone!
I wish you and your family a happy new year and I wish you the best: success in you projects, a healthy life and I thank you for supporting me since the beginning.
French Focus Investing reached 460 subscribers since September! I am really grateful for the incredible support.
For 2026 I want to write even more deep dive that I currently do. Maybe different concepts on politics and the way it will have an impact on our investments. Tell me what you think in the comment!
I am also preparing a mega file on French companies and in which you should invest but this is a massive work.
Now we will go our edition of Café & Croissant.
Best,
Ulrich
Abstract
As France's CAC 40 opened 2026 with defense stocks leading a modest rally, the market revealed what government rhetoric obscures: capital is rotating toward contractors backed by NATO commitments and European defense budgets, abandoning faith in domestic revival. This shift, while narrowly positive, exposes the structural fragility of French institutions.
Defense Contracts as France’s Most Honest Barometer
The opening day of 2026 carried no fanfare, yet the composition of the CAC 40’s modest gain, 0.9% to 8,220 points, told a coherent story about investor priorities. Airbus, Safran, and Thales rose between 2.0 and 2.9 percent, while broader equity measures followed in their wake. This was not accident; but realism asserting itself through capital allocation.
The rally reflected finalized NATO defense commitments, announced on December 16, establishing €2.42 billion in military budgets for 2026 alongside the European Commission’s parallel machinery for defense finance. More concretely, France itself has committed to raising defense spending to €57 billion in 2026 and €64 billion by 2027, a doubling from 2017 levels under President Macron’s strategic doctrine. Thales reported third-quarter order intake of €6.4 billion in October, exceeding analyst consensus of €5.5 billion, underpinned by contracts from British and German defense ministries. Safran’s 2024 revenue climbed 17.8 percent to €27.3 billion, with a 15.1 percent operating margin, concentrated in aerospace and the Franco-German-Spanish Future Combat Air System (FCAS), a multi-decade commitment.
Next Deep Dives on French Focus Investing:
Thales
Dassault Aviation
We already did on Safran
This is the texture of investor confidence at present: not in French fiscal stability like it should be a normal country, or in a domestic demand recovery like in an expansion phase, but in commitments made by foreign governments and international institutions whose budgets remain more reliable than Paris’s own. The paradox is neither subtle nor accidental.
Consider the broader context. France entered 2026 without an approved national budget. The government deployed emergency legislation on December 22 to avoid fiscal gridlock, with the full finance bill expected to be adopted in January, months behind schedule and amid fractured parliamentary majorities. The 2025 budget itself was not finalized until February, costing the Treasury €12 billion in foregone revenue and lending credibility to the markets’ doubt about French fiscal institutions! Prime Minister Sébastien Lecornu remains hostage to centrist and far-left factions, neither of whom commands sufficient votes to pass legislation unilaterally. This is not transitional political friction. This is structural paralysis.
Yet simultaneously, France’s manufacturing sector executed a convincing inflection in December.
The HCOB Manufacturing PMI surged to 50.7 from 47.8 in November: the first expansion in three and a half years, the highest reading since August 2022. Production indices stabilized, employment returned to growth, and new export orders provided momentum. HCOB commentators noted, with evident surprise: “2025 closes on a surprisingly upbeat note.” This data, however, demands disaggregation. The sector’s resilience derives almost entirely from export demand, particularly orders from defense and aerospace clients abroad, while domestic orders remain subdued, crushed by consumer caution and political uncertainty. The French are not buying machine tools or components for assembly.
But Germans, Britons, and European defense procurement offices are.
This bifurcation exposes the true architecture of French recovery: not reindustrialization but selective export strength in sectors insulated from French institutional risk. Safran manufactures engines for Airbus civilian aircraft and for the FCAS fighter jet program. The former depends on global aeronautics demand; the latter depends on binding treaties between France, Germany, and Spain. Both escape dependence on French government competence or French political coherence.
The question such data poses is not rhetorical: Can a modern economy sustain structural growth when its most reliable sources of demand originate externally, when its domestic demand remains anemic, and when its political institutions cannot reliably pass budgets? The short answer is: temporarily. Exports provide momentum. But they do not recruit domestic investment, do not reduce unemployment below structural levels, and do not signal a return to broad-based productivity growth.
France’s industrial renaissance, discussed with optimism by government officials from 2020 through 2024, was always a statistical fiction, a recovery from the Covid trough rather than a recapture of lost industrial share. The Finance Ministry’s own industrial barometer reported a slowdown in reindustrialization momentum as of October 2025…. CGT unions recorded 444 redundancy announcements since June 2024. More than 300,000 jobs remain at risk across traditional sectors. The defense rallies around Safran and Thales do not reverse this trend. Indeed they exemplify it: capital migrating to the only sectors where revenue is both predictable and foreign-sourced.
The CAC 40’s opening week performance, then, should be read not as economic optimism but as disciplined pessimism. Investors are not betting on French economic recovery. They are hedging: rotating capital into firms whose earnings depend on NATO, on European treaties, on orders that bypass French fiscal dysfunction. Macron promised reindustrialization. Markets have concluded that selective export strength, ringed by institutional fragility, is what France can reliably deliver…
This is the economy France is choosing to have: economically narrow, financially constrained by political fracture, its brightest prospects anchored to foreign commitments rather than domestic revival. The defense sector’s gains are real. They are also symptomatic of the catastrophic we have here.
Again, I wish you a good day and a happy new year!
Ulrich.
The French state has a significant capital participation in those companies and the power to appoint board members, right ?