Hua Er Jie Jian Wen·2025-08-28 09:21Core Viewpoint - The recent political turmoil in France has been largely absorbed by the market and is not expected to reverse the strong performance of European stocks compared to U.S. stocks this year [1] Group 1: Market Reaction - The initial reaction to the political crisis led to a sell-off, with the French CAC 40 index dropping by 3.3% over two days and the yield spread between French and German 10-year bonds widening to its highest level since April [1] - However, the market quickly stabilized, with the CAC 40 index rebounding by 0.4% and the broader Stoxx Europe 600 index also showing signs of recovery [1][2] - Some investors view the current volatility as a buying opportunity, believing that the solid fundamentals in Europe will outweigh political noise [1] Group 2: Economic Fundamentals - Strong economic data supports investor confidence, with the Eurozone's private sector growth in August reaching its fastest pace in 15 months, indicating a recovery from a three-year manufacturing slump [3] - Analysts have begun to revise earnings forecasts upward after a period of downward adjustments, with positive economic data and improving prospects in China deemed more significant than political uncertainties [3] Group 3: Investment Sentiment - The widening yield spread between French and German bonds has made French bonds more attractive relative to U.S. bonds, prompting some investors to consider this a buying opportunity [4] - The sentiment of "buying the dip" extends to the stock market, with some analysts suggesting that the French political situation is not a game changer for the overall European rebound [5] - The valuation premium of the French stock market relative to the German DAX index has been reduced, with the forward P/E ratio of the CAC 40 at 14.8, slightly below that of the DAX, which is uncommon in the past decade [5]