France ETF Tumbles Along With Country's Banking Sector

| About: iShares MSCI (EWQ)

An exchange traded fund indexed to French stocks fell 5% Wednesday morning on worries over the country’s banking sector.

Societe Generale (OTCPK:SCGLY) shares were down sharply. France’s President Nicolas Sarkozy was holding an emergency government meeting to discuss Europe’s debt crisis, the Associated Press reported Wednesday.

The iShares MSCI France (NYSEARCA:EWQ) slipped 5%.

The French economy is weakening as the country grapples with its rising deficit.

The IMF cautioned that external risks stemming from the Eurozone crisis could shake the stability of the French economy and stated that the country’s banks were “significantly exposed” to peripheral countries, reports William Horobin for The Wall Street Journal. The organization also noted that French banks should increase capital to meet the new capital-adequacy ratios.

“France cannot risk missing its medium-term fiscal targets given the need to strengthen implementation of the [euro zone's] Stability and Growth Pact and keep borrowing costs low by securing France’s AAA-rating,” according to the IMF’s annual report.

It also warned that France’s debt and deficit levels were higher than other European countries with a triple-A rating. France’s government deficit was 7.1% in 2010. Sarkozy plans to bring down the deficit to 3% by 2013, which is in line with the Eurozone pact of keeping deficits below 3% of GDP.

The IMF holds a more pessimistic outlook on France’s growth, estimating the deficit to reach 3.8% in 2013 and 3% in 2014. It points to potential risks from sovereign concerns if the Eurozone financial problems continue.

“A swing in investor sentiment could affect the availability and cost of financing to banks and the sovereign,” the IMF added.

The IMF calculates that the French economy will slow to 1.9% in 2012 after expanding 2.1% this year, as compared to the French government’s projection of 2.25% growth for 2012, reports Francesco Fontemaggi for AFP.

iShares MSCI France

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Max Chen contributed to this article.

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