Cyril Charlot
I don’t think it will be interest rates insofar as the market is already expecting them to fall. Besides, I think that any attempt to control the economy has adverse effects on the market. We witnessed this with the strong reaction of the market to the announcement of the Bush plan. Hence I find it hard to pick out which factors, at macroeconomic level, might trigger a change in the level of confidence.

Pierre Puybasset
I also think that the market is highly sceptical of intervention in its various forms. I think it should be left alone to find its balance through price levels. It needs to regain a certain amount of visibility of the financial capacity of companies, which will provide a solid basis for traditional price calculations. I think this will take some time. We are therefore entering 2008 with a low level of visibility.

Emmanuel Morano
The effects of the 1998 crisis on the banking sector lingered into 1999. We therefore need to view the current situation as a slow "digestion" process. I don’t expect the banking sector to be able to reassure the market. I go as far as to believe that the market can manage without the banking sector. I would also like to point out that, at 4.2%, the nominal yield of equities is higher than the risk-free money market rate.

Laurent Dobler
I also believe that interest rates will fall.
Having said that, I think the main stumbling block is high-risk loans to companies and this situation is set to continue. Yet, with no major bankruptcies, this pitfall has not yet materialised despite the fact we have increased the number of synthetic products in this area. Remember that the value of CDS in hedge funds is currently USD 14,000 billion. We do not yet know to what extent the banks are running a risk. And don’t forget that there are recurrent risks inherent in "off balance-sheet products.".

Emmanuel Morano
At the risk of appearing cynical, I would say that, although households and some SMEs would likely suffer from such a move, this would not be the case for the major groups as they are not in fact encountering cash flow problems.

Cyril Charlot
I find it difficult, at the present time, to estimate the amounts that will have to be docked from the equity capital of the banks. If we consider the CDOs alone, these account for between 400 and 500 billion Dollars but the banks will be able to absorb this blow. However we need to look at other products such as consumer credit, securitisation, etc..
There is still some liquidity about, particularly in sovereign funds. These are available to the banks and may also seize the opportunity to take shareholdings in them at knockdown prices. I don’t think we have a true liquidity crisis but rather a crisis of confidence between the banks. Once we have better visibility of the banks’ balance sheets and any necessary recapitalisation operations have taken place, I think the situation will return to normal.
Finally, I believe we are entering a period that will favour the external growth of well-managed companies that hold cash in their balance sheets.Not only will they no longer face the same levels of competition but they will also benefit from the recent correction that affected between 30% and 50% of the prices.

Cyril Charlot
They may well be.
Furthermore, the 2007 results will be published shortly, as will the forecasts for 2008, and we are finding, as we meet with company directors, that the outlook is looking quite clear for a number of them. Company directors may not necessarily be expecting an imminent slowdown but their state of mind is strongly at odds with the market climate and the opinion of economists.

Laurent Dobler
Remember that often the management teams of companies don’t see the problems until they arise. The property market was a prime example of this.

Cyril Charlot
It all depends on the sector. In some sectors, European companies dominate the market; they have delocalised cost bases and low exposure to the French and European markets. I am thinking particularly of SEB, a company that generates 45% of its turnover in the emerging markets and is gradually delocalising its cost base. I would obviously be less inclined to invest in a French SME in the automobile sector as a company such as this will have its cost base in France. On the other hand, there are other companies which perhaps do not benefit directly from the Euro rate but are managing to capitalise on it.

Emmanuel Morano
In the infrastructure sector, I could mention Alstom, a company which has increased its order book by 50% and whose turnover for the last quarter was entirely satisfactory.
And I believe that the oil services sector is also a growth sector. I am thinking particularly about Géophysique, which has increased its guide figures for the next three years.
In the technology sector there are a few companies such as SAP that are dominating their respective markets.
As for industrial services, shares are valued at 11 times profit with the market average standing at 10.5. Here again it is a matter of seeking out the leading companies.

Laurent Dobler
Capital goods companies follow a cycle. So are we about to embark on a 10-year super-cycle? In which case, future profits could explain the current high price of shares. Or are we about to witness a global slowdown of the economy, in which case margins will be set to fall? There is no easy answer. It is however remarkable that traditionally defensive stock such as L’Oréal and Danone has remained stable. Yet consumers do not generally economise on the products of companies such as these. In times of crisis they might eat out less often or reduce the amount of money they spend on their cars or holidays but they do continue to buy themselves "little treats" to make up for it and this means buying the well-known brands.

Laurent Dobler
The pressure from the price of raw materials is felt in equal measure by all shares in the sector. Besides, food expenditure accounts for only a very small part of the budget of European households.
So I don’t think you would stop buying your usual pack of yoghurts because the price has gone up by 30 Eurocents. Price variations in these products have very little affect on consumption. If, on the other hand, the cost of hotel rooms, your morning coffee or services were to go up, you might be inclined to tighten the purse strings.

Laurent Dobler
It all depends on what stock you have in your portfolio.
Laboratories that sell life-saving molecules or well-protected drugs are not likely to see a fall in business. However, there is no such guarantee that sales of comfort products will be sustained, particularly when they are very similar to generic drugs.
Having said that, the health sector is the least cyclical of all the sectors and, as we are talking about unique products protected by licences, the pricing power is still there. Besides, it is hardly likely you will be able to delay expenditure on prostheses by more than one quarter. I am actually quite surprised that the market doesn’t involve itself more in this sector.

Cyril Charlot
In my view defensive stock has in fact played its role well over the last six months. The utilities in particular have stood up well, even progressed, in a market that has fallen by between 15% and 20%. Shares in the telecoms sector have also delivered satisfactory performance.
At present we believe that utilities have become too expensive. Their PER has in fact gone from seven times to almost ten times profit. And there are significant regulatory risks that we cannot ignore. For example, although telecoms stock may appear to be correctly priced, let’s not forget that France Telecom is not permitted to increase its prices.
The impact of the technological breakthrough, on the other hand, seems difficult to assess. For instance, you can currently call anywhere in the world for free using technologies such as Skype. This means that this sector perhaps offers less visibility than before.
In the pharmaceutical sector it is a matter of examining closely the position of each share. We cannot rule out some nasty surprises so we need to favour companies whose product portfolio offers good visibility.
Then when it comes to agri-foods, the higher price of raw materials could dilute the defensive nature of these securities. It is certainly true that this is not the first area where households cut back but what exactly is their price elasticity on food expenditure? To what extent might a consumer not prefer the distributor’s own brand product that is 30% to 40% cheaper to a Danone product? We need to weigh up situations such as these.
Although the infrastructure sector fell quite sharply last week I do believe that prices are currently at the right level. Shares such as Alstom were after all valued at almost twenty times profit.
For our part, we are going to adopt a diversified approach. We have little desire to invest in defensive stock. We are more inclined to invest in stock that has a reputation for being cyclical but, in doing so, adopting a selective approach by examining certain parameters such as the balance sheet, competitiveness and margin stability of the companies, particularly in times of turmoil. I am thinking specifically of Manitou, whose balance sheet has a cash component of Euro 130 to 150 million and whose operating margin has ranged between 10% and 12% over the last ten years. On a more general note, I feel that the market has considerably overestimated the cyclical nature of some shares.

Pierre Puybasset
The small and mid caps have been particularly disadvantaged by market arbitrages as the market is seeking visibility and liquidity. This has resulted in major selling activity which has weighed heavily on the performance of this stock in a fairly indiscriminate manner. Investors who know this area well could seize some of the investment opportunities that are beginning to arise but, at the end of the day, we prefer to consider the shares on an individual basis.