A continuing strong appetite for precautionary savings
From a financial viewpoint, a particularly strong appetite for savings continued to be observed in France in February and March 2021 with the fear of rising unemployment playing a decisive role in driving this behavior. Both economic activity and people’s propensity to save are driven by a general uncertainty about the future course of the health crisis and restrictions imposed on individual mobility. In 2020, the two lockdown periods led to an 8.2% collapse in the real economy and an impressive rise in the savings rate – to 21.3% – resulting in excess savings of approximately €110bn compared to previous years.
Most of this savings glut has been channeled into financial investments measured in this study in terms of net flows of investment funds, i.e. cash inflows net of withdrawals excluding capitalized interest and stock market capital gains. These net flows reached approximately €150bn in 2020, equal to an increase in investment of almost €100bn compared to the 2018-2019 average. In 2020, savers favored liquidity and security, with new funds principally flowing to sight deposit accounts (€73.9bn) and, to a lesser extent, to passbook savings accounts (€61.3bn) at the expense of life insurance (-€6.5bn), which suffered the second largest outflow of funds in the sector’s history after 2012 (-€6.3bn). Securities benefited to a lesser degree from positive inflows (in contrast to the large net withdrawals noted in previous years), thanks to the arrival of opportunistic investors after the market crash in March.
These investment decisions can be explained by the context of abnormally low interest rates and by people’s desire to maintain a very substantial buffer of precautionary savings driven by difficulties to plan for the future and the fact that the health and economic situation has not yet returned to normal. Since the beginning of 2021, we have observed a slowdown in excess saving (notably in February) tending towards €5 billion per month (i.e. €60 billion in the course of the year) with a greater emphasis on passbook savings accounts at the expense of sight deposits, and a sharp recovery in life insurance.
In 2021, we should witness a moderate decline in financial investments – a trend that should become more pronounced in the second half of the year as and when uncertainties about the future of the health crisis are gradually dissipated – in line with an annual savings rate of 19.2%. This overall rate will result from a gradual decline: from 21.6% in Q1 2021, then 20.6% in Q2, 18.0% in Q3, and 16.5% in Q4. The principal reasons for these enhanced precautionary savings will be a moderate rise in purchasing power, persistently high (albeit slowing) real estate debt, and inexorable growth in unemployment… in the absence of a clear improvement in confidence: net savings flows of €126bn are expected in 2021 vs. €150bn in 2020, i.e., surpluses that remain at record levels compared with an already exceptional €71bn in 2019 and a high of €80bn in 2006. Mistaken expectations in 2021 of having to pay more taxes, the lower propensity to consume displayed by the 20% of wealthy individuals responsible for 70% of excess savings, and even the expectation of slightly higher inflation, are also liable to limit the decline both in the savings rate and in financial investments, in line with the relative inertia of household savings behavior generally noted after a shock. It is likely that investment decisions will continue to be influenced by a wait-and-see attitude, a concern for safe and readily available savings but with the relative persistence of a form of opportunism with regard to equities. The forecast anticipates the beginning of a shift away from sight deposit accounts (€58 billion) towards passbook savings accounts (€56.9 billion) and even to life insurance products, where fund inflows are expected to become positive once again (€7.7 billion) with weaker outflows from euro-denominated products (-€11.5 billion). As for securities, inflows are expected to remain very strong at nearly €10 billion, a high level compared to previous years but lower than the high-water mark achieved last spring. Indeed, the current high level of stock market values reduces the possibility of quick or easy gains while at the same time giving savers reasons to fear the emergence of an equity bubble.
Have the French become newly enamored with the stock market?
Between 2009 and 2019, the proportion of French people holding equities – via mutual funds or directly via personal equity plans (PEA) or securities accounts – was divided by a factor of two and households proceeded with net withdrawals of around €80 billion from listed equities and non-money market funds. In a context still marked by the strong risk aversion expressed by French households, equities have nevertheless seen an improvement in their image: 18% of French people believe that now is a good time to invest in the stock market, 8% of them say they have purchased equities since the beginning of the crisis, and 11% say they are considering doing so. This renewed interest goes hand-in-hand with a strong awareness of alternative investments: 10% of the French say they have already invested in one of the following four assets: Bitcoins/cryptocurrencies, participatory finance, gold, or forests… and 21% are considering doing so.
However, this return to equities is proceeding in a manner different from the traditional practices of individual share ownership. An exercise carried out to identify the types of equity holders included in the Audirep – BPCE L’Observatoire survey reveals the existence of three different profiles:
- Expert investors (2% of French people) holding extensive, diversified financial assets, display a strong appetite for risk and a high degree of financial expertise,
- Patient investors (7% of the French), less expert and much more risk averse, are long-time equity holders but own a limited portfolio,
- Neo-investors/opportunists (3% of the French) are significantly younger than the average but, above all, have invested more recently: 30% of them have held shares for less than a year and 23% between 1 and 5 years, but they are extremely active both in buying and selling shares.
In addition to these three groups, 6% of French people – who do not, however, already own shares – say they are interested in this form of investment and could be classified as ‘potential investors.’ These four types of investors illustrate three highly characteristic trends:
- Alongside the continued existence of a small proportion of experts, a gradual shift is occurring between the mostly retired ‘patient investors,’ more than 30% of whom are thinking about whether they should leave the stock market altogether, and the opportunists who, even though they are younger on average, are nonetheless over-represented by affluent socio-professional categories and by the over-60s, and the ‘potential investors,’ where the 18-45 age group is over-represented. The ability to attract younger shareholders will consequently depend on the successful conversion of these potential investors to active stock market investment.
- Choices regarding asset management approaches distinguish the experts – who are more willing to take risks and invest in emerging stocks – from all the other groups who are more concerned about not losing money. What differentiates patient investors from opportunists or potential investors, therefore, is less their appetite for risk than their investment horizon. While patient investors have adopted prudent investment strategies and have bought or sold little since the onset of the crisis, the opportunists and potential investors hope to take advantage of price volatility and adopt strategies of short turnaround times and frequent arbitrages.
- Changes in attitudes also reveal a strong temptation (notably among potential investors who are younger on average and have smaller and less diversified assets) for alternative assets as opposed to traditional savings products whose return is deemed negligible. Indeed, many of them have already invested in crypto-currencies, gold or participatory finance, with equities seen as just an alternative asset among others. As a result, the positive trend towards a renewed interest in the stock market is going hand-in-hand with a more worrying trend of novice investors taking risks out of all proportion to their ability to cope with them.