(BFM Bourse) – Unlike the CAC 40, which benefited from the great shape of luxury stocks, the CAC Small index is struggling. Small and mid caps find it difficult to stand out in a complex economic environment.
Small companies listed on the Paris Stock Exchange have struggled to attract investors for several years because they are often considered too risky and less solid than multinationals in the face of crises.
On the front of the stock market scene, everything is going for the best on the Paris Stock Exchange: driven by its luxury stocks, the star CAC 40 index has risen by more than 10% since the start of the year and is flying from record to record. The atmosphere is less joyful away from the spotlight, for smaller companies: since the beginning of the year, the CAC Small index, which includes nearly 115 companies, has advanced only 1%.
And the trend is taking hold: this index, which includes small and medium-sized companies, has done less well than the CAC 40 five times over the past six years. Between 2000 and 2017, this had only been the case three times.
The definition of a small stock market value varies according to the investors. Some place them at less than 500 million euros in market valuation, others at less than five billion euros.
A brutal return to earth
Some companies that were on the rise, such as in the biotech or green energy sectors, have also suffered a brutal return to earth since their post-containment boom. For example, the title of the specialist in hydrogen production and distribution equipment McPhy Energy went from 3 euros at the end of 2019 to more than 35 euros at the start of 2021, before falling to 9 euros now.
Historically, small companies may interest investors “because they are at a less advanced stage of maturity and therefore have stronger growth”, explains Annabelle Vinatier, specialist manager of Lazard Frères Gestion.
Investing in these companies is potentially more profitable, but also more risky because their activity is not as diversified as that of a large multinational and is more vulnerable in the event of hazards. This characteristic can pose a problem, “especially in the event of a generalized crisis, such as during the Covid-19”, underlines Alan Edington, head of investments at Walter Scott.
A strong outflow
Above all, in the markets, between inflation, the war in Ukraine and the rise in interest rates “there is no longer any appetite for risk”, and investors preferred to turn to more mature and more liquid companies ( whose shares are bought and sold more easily), relates Benjamin Rousseau, manager at Edmond de Rothschild AM.
As a result, money directed to small businesses is shrinking, with nine billion euros in net outflows since September 2017 to small businesses in France, according to asset manager Kirao.
This trend is accentuated by the rise in power of passive management, which consists for certain investors of simply replicating the evolution of an index or a basket of securities. This practice is less concentrated on small stocks, the price of which is more difficult to replicate, adds Saad Benlamine, from Kirao.
Betting on takeover bids
But fund managers are hoping for a favorable pendulum swing. “Many companies have high order books, high visibility” without this being felt on the stock market, and the financial results season has been good, assures Ms. Vinatier.
Investors can try to bet on companies that are the subject of a takeover in sight, with takeovers at a price well above the market price. At the end of April, the agricultural cooperative Limagrain, majority shareholder of the world’s fourth-largest seed company Vilmorin, launched a takeover bid with a view to taking the company out of the market for a price 45% higher than the share price the day before the announcement.
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