French Equities: A Strategic Case for 2026 – Undervalued Cyclical Recovery and Selective Stock Opportunities

The French equity market, long overshadowed by its German counterpart and U.S. benchmarks, is emerging as a compelling case for tactical investors in 2026. A confluence of undervaluation, macroeconomic stabilization, and selective stock opportunities-highlighted by updated recommendations from Kepler Cheuvreux-positions France as a prime candidate for a cyclical re-rating. This analysis synthesizes recent performance data, macroeconomic trends, and institutional insights to build a robust case for a strategic entry into the French market.

EWQ's Outperformance: A Harbinger of Broader European Rotation

The iShares MSCI France ETF (EWQ) has outperformed broader European indices in 2025, with a year-to-date total return of 17.3% as of May 2025 and a staggering 27.91% YTD as of December 2025. This outperformance contrasts sharply with the CAC 40's struggles in 2024, which ended the year at -0.7% due to political instability in France. The divergence underscores EWQ's ability to capture gains from structural growth opportunities in French equities, even as the benchmark index grapples with domestic headwinds.

This trend aligns with broader European market dynamics. European equities, including the DAX and STOXX Europe 600, have outperformed U.S. indices in early 2025, driven by low valuations, fiscal stimulus, and a shift away from expensive U.S. growth stocks. The European Central Bank's (ECB) rate cut in April 2025 further catalyzed this rotation, easing liquidity constraints and boosting investor sentiment. For French equities, this creates a favorable backdrop for a re-rating in 2026, particularly as political risks recede and fiscal discipline gains traction.

Macroeconomic Stabilization: A Foundation for Recovery

France's macroeconomic fundamentals are showing early signs of stabilization, albeit with lingering challenges. The 2025 deficit is projected at 5.5% of GDP, reflecting fiscal adjustments such as revenue-increasing measures and expenditure reductions. While public debt remains elevated at 114% of GDP according to WorldPeratio, the IMF has signaled that credible fiscal reforms could bring the deficit below 3% of GDP by 2029 according to IMF reports.

GDP growth, though modest, is expected to reach 0.6-0.7% in 2025, supported by stronger consumption and investment despite weak manufacturing activity. This gradual recovery is critical for restoring investor confidence, particularly as over 80% of French stock revenues are generated internationally, insulating the market from domestic political volatility according to WorldPeratio. Additionally, France's economic performance is increasingly decoupling from Germany's, which is projected to experience a sharper rebound in 2026 due to expansionary fiscal policy. This divergence suggests that French equities may benefit from a more stable macroeconomic environment in the near term.

Valuation Attractiveness: A Contrarian Edge

French equities trade at a significant discount to their U.S. and European peers. As of late 2025, the MSCI France Index has a price-to-earnings (P/E) ratio of 12.3x, compared to 23.5x for the S&P 500 and 15.1x for the EuroStoxx 600. This valuation gap reflects persistent underperformance but also creates a margin of safety for investors. The ECB's accommodative monetary policy and global capital flows into undervalued markets further amplify the case for a re-rating.

Moreover, the structural resilience of French companies-many of which are global leaders in sectors like luxury goods, energy, and logistics-adds to their appeal. For instance, Kering and L'Oréal, both highlighted by Kepler Cheuvreux, are poised to benefit from long-term trends such as decarbonization and e-commerce growth according to Kepler Cheuvreux's analysis.

Kepler Cheuvreux's 2026 Picks: A Blueprint for Selective Exposure

Kepler Cheuvreux's updated 2026 stock recommendations provide a roadmap for capitalizing on France's cyclical recovery. Key picks include:

1. Carrefour: Trading at a 50% discount to European retail peers, this retailer offers a 7%+ dividend yield and is expected to see a 15% upward revision in 2026 earnings per share (EPS) due to operational restructuring according to Kepler Cheuvreux's analysis.
   2. GTT: A defensive play with a 29% revenue increase in 2025's first nine months, GTT benefits from long-term infrastructure contracts and consistent cash flow according to Kepler Cheuvreux's analysis.
2. ID Logistics: Positioned for high-single-digit growth in 2026, this logistics firm is expanding in e-commerce and complex supply chains, with 27+ new contracts launched in 2025.
3. Bureau Veritas: A leader in testing and certification, it reported 6.3% organic sales growth in Q3 2025 and aligns with decarbonization trends.

These stocks exemplify the blend of value and growth potential in the French market, offering investors a diversified approach to capturing the re-rating.

Conclusion: A Tactical Entry Point for 2026

French equities present a compelling case for 2026, combining undervaluation, macroeconomic stabilization, and selective growth opportunities. The iShares MSCI France ETF (EWQ) offers broad exposure to this recovery, while Kepler Cheuvreux's top picks provide a targeted approach to capitalizing on sector-specific momentum. As political risks recede and global capital reallocates to undervalued markets, France is poised to deliver a meaningful re-rating-a strategic opportunity for investors with a medium-term horizon.