France’s Resumption of Nuclear Testing Could Have Investment Impact

French companies may not be responsible for their government’s unpopular decision to resume nuclear testing in the South Pacific, and the region may account for only a small portion of French exports. Even so, investors should consider how growing public anger could affect stocks.

“One should start worrying a bit about that, considering there has been such an outcry,” said Sylvain Massot, a Morgan Stanley consumer analyst. “We’re starting to hear rumors that French products could be boycotted,” he said on the Bloomberg Forum.

Shares of Royal Dutch/Petroleum Co., which owns 60% of the Royal Dutch/Shell Group, fell more than 6% during the controversy over the sinking of the Brent Spar oil platform. It was accompanied by a consumer boycott in Germany and protests around Europe.

The French government’s decision to resume testing of nuclear weapons on an atoll in the South Pacific, and its ramming and seizure of the Greenpeace ship Rainbow Warrior II in territorial waters, has angered the public and sparked outrage among top European, Australian and New Zealand officials. The French government has since released the environmental group’s vessel.

While no official boycott of French goods is planned, consumers may decide to avoid French products out of anger. A Greenpeace spokeswoman said unconfirmed reports showed sales of French wines have dropped 30% in Australia since the controversy started. The Australian Council of Trade Unions had imposed a ban on the production of goods and services for Bastille Day.

Officials at Greenpeace said that, while they don’t favor a blanket boycott of French goods, the organization’s Paris office is preparing a list of the companies that are involved in the French nuclear program.

Melvyn Gattinoni, a Greenpeace fund-raising director, said the list would cover companies in the defense, telecommunications and construction industries and could be followed by meetings with the companies’ customers.

French companies could be hit by a small decline in sales volumes if consumers switch to alternative products, and the sales drop could over time become significant. Defining a corporate target, however, may be hard.

“In the case of Shell, it was easy to single out one company with one product,” Massot said. “In this case you are talking about organizing a boycott of a large number of companies, a large number of products.”

Most consumers don’t realize that HP sauce is owned by French food products company Danone SA.

Some products, such as cognac and champagne, are synonymous with France and could be shunned. The threat is compounded for makers of cognac, for instance, because the Asia-Pacific region constitutes up to 40% of sales, led by Hong Kong, China and Japan. Shares of companies such as LVMH (Moet-Hennessy Louis Vuitton) or Remy Cointreau would be hit hardest, said Massot.

Frederic Genevrier, an analyst with Barclays de Zoete Wedd in Paris, doesn’t think consumers would turn against French goods in general, with the possible exception of those in Australia and Asia-Pacific countries. In particular, though, companies such as Australian wine maker Pernod-Ricard could be affected.

An official at the Bureau National Inter-professional du Cognac, the industry association, said the nuclear testing affair is purely political, not economic.

“I would be very surprised if it had an effect,” said Sophie Vallejo of the Cognac Information Centre in London.