While confidence has been returning to Europe's periphery, investors seem more uncertain regarding the direction of France.
Around a year ago, the yields on French government bonds were pushed higher on worries that countries such as Greece, Spain and Italy would cause the euro to break up, banking contagion, and French fundamentals.
(Read more: Blow for Hollande as French jobs deadline looms)
Since then, while the storm clouds over the periphery have started to clear, the French have faced low growth, weak restructuring, unhappy labor, and a messy political environment. However, along with elsewhere in Europe, there has been a strong return to the French equity market.
Antonin Jullier, Global Head of Equity Trading Strategy from Citi says the French market is a real concern. He thinks French growth will remain subdued, which would mean French stocks would underperform. But, according to Jullier, expressing this via the equity indexes is suboptimal as you end up with exposure to French companies domiciled in France, but doing business abroad.
(Read more: Euro zone manufacturing grows; France stumbles on)
Jullier adds that before European Central Bank (ECB) President Mario Draghi's promise to 'do whatever it takes'in July 2012, investors had been hiding in safer markets like Germany and Scandinavia. Draghi's speech changed this. Since then, investors have wanted to increase their play on risk, and have taken on more beta, e.g. by going long Italy and Spain.
So is the 2014 trade to go long on the Spanish IBEX while shorting the French CAC? The problem here is this wouldn't properly give you the "sell France" trade. Instead, investors should differentiate between companies domiciled in France, versus companies exposed to the domestic French economy. Conglomerates like LVMH, Danone, and Total may be French companies, but they generate a large portion of their revenues outside France. On the other hand, companies like Vinci, Bouygues, EDF, Carrefour and Orange all have a much larger exposure to the core domestic French market.
Jullier sees the global economy picking up further in 2014, but he cautions that while global equity markets should do well this year, they won't manage to replicate the record gains seen last year. Jullier points out that despite earnings being flat, the French market was up 18 percent in 2013, and that this came from price/earnings expansion as valuations normalized from depressed levels after the great financial crisis. In 2014, gains will be primarily driven by an earnings increase, according to Jullier, and to a lesser extent by P/E expansion.
(Read more: Is France heading for a new recession?)
French national debt reaches 'danger zone'
Didier Migaud, the president of the French public audit office, last week said 2013 French national debt had reached a "danger zone" at an estimated 93.4 percent of gross domestic product (GDP), and that efforts undertaken so far are not sufficient to get out. At the end of 2012, France's national debt stood at 90.2 percent of GDP.
Commenting on the rise of public debt, Migaud went on to add that the disappointing and worrying assessment was not, in itself, surprising, and that you can't erase almost 40 years of accumulated deficits in three years and in a depressed economic situation.
Putting more pressure on increasingly unpopular President Francois Hollande, Migaud pointed out that the abnormal persistence of structural deficits for over 20 years singles out France from its neighbours. He added that any effort to reduce public debt, and the social security system's deficit, first and foremost had to come from the government.
In contrast to the very weak recent PMI surveys suggesting the French economy had lost steam at the end of 2013, figures from The Bank of France last Friday suggest that the country's GDP probably saw strong growth in the fourth quarter of 0.5 percent compared to the previous quarter, where a measly 0.1 percent contraction was seen.
The official statistics bureau, INSEE, last month estimated fourth-quarter growth of 0.4 percent. INSEE is due to deliver what could be a small Valentine to the French government when it publishes its preliminary fourth-quarter growth figures on February 14.
(Read more: Champagne sales fall flat on French economic gloom)
Moreover, a number of one-off factors, like strong electricity production during colder weather, helped French November industrial production beat estimates with a rise of 1.3 percent against the expected 0.4 percent.
France still is Europe's second-largest economy, and although there are some worries, there is also still a popularity play on the country. If Europe continues to recover, so will France. Just as we saw strong demand for Irish 10-year bonds at an auction on Monday, France also saw firm demand for its 10-year benchmark, today selling 5.1 billion euros worth of the paper at a yield of 2.51 percent(up from 2.41 percent in November). In its first sale of long-term debt of the year, France sold a total of 8.3 billion euros of 6-, 10-, and 50-year bonds,with investors putting in bids of 15.8 billion euros.
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