 "Explained: Why Paris lost its crown as Europe’s biggest stock market to London")
Paris has recently lost its title as Europe’s largest equity market to London, largely due to political turmoil in France. French president Emmanuel Macron’s unexpected announcement of snap elections triggered a significant sell-off in French stocks.
The market capitalisation of French firms dropped by approximately $258 billion last week. This sell-off included a substantial decline in the shares of major banks such as Societe Generale SA, BNP Paribas SA, and Credit Agricole SA, each losing more than 10 per cent. As a result, the total market value of French stocks now stands at around $3.13 trillion, narrowly behind London’s $3.18 trillion.
How did France’s snap elections impact the market?
Macron’s decision to call national assembly elections took most French political analysts by surprise, following a poor showing by his Renaissance party in the European parliamentary elections.
Polls suggest that the far-right National Rally (RN), led by Marine Le Pen and Jordan Bardella , could become the largest party in the assembly, which would significantly impact the remaining three years of Macron’s presidency and increase market volatility.
The RN’s platform of unfunded public spending has been a significant concern for investors. Analysts from UBS noted, “The probability of no clear majority emerging is high, leading to potential political instability.”
The French turmoil has been mirrored in the bond markets, with the spread between French and German borrowing costs widening to the highest level in seven years. The euro has weakened against the pound since Macron announced the elections, with sterling rising from €1.1772 to €1.19. The CAC 40 Index, France’s benchmark, has erased all its gains for 2024 after reaching record highs only a month ago.
Impact Shorts
More ShortsWhat are the economic consequences?
France’s major banks, including Societe Generale and BNP Paribas, were hit hard, each falling about 7 per cent. The value of luxury goods maker LVMH, which significantly bolstered Paris’s stock market, also declined by 9 per cent in the past month. This decline further contributed to the drop in Paris’s stock market valuation.
The political uncertainty has also affected France’s bond market. The gap between French and German borrowing costs, a measure of investor risk perception, widened to the highest level in seven years. The market’s reaction highlights the significant impact of political events on investor confidence and market stability.
As Bruno Le Maire, France’s finance minister, warned, the country “would face guaranteed economic collapse” if parties on the extreme right or left rose to power. He also cautioned that if Le Pen is elected, France could face a debt crisis similar to that experienced by the UK under former UK Prime Minister Liz Truss.
How has the London market fared?
In contrast, London’s stock markets have experienced a resurgence, fueled by recent successful IPOs and positive investor sentiment. London has regained its position as Europe’s leading stock market with a combined value of £2.51 trillion, making it the sixth largest in the world.
This comeback is a significant boost for London, especially given the challenges it has faced, such as a slowdown in IPOs and the trend of British tech firms opting for listings in the US for higher valuations.
One of the notable successes in London is the IPO of budget computer maker Raspberry Pi . The company’s shares have steadily increased in value since its debut last week, making it one of London’s best-performing tech listings in recent memory.
Julia Hoggett, CEO of the London Stock Exchange, remarked on this achievement, stating, “Whilst I recognise that this is an individual honour, I feel it is very much for the team of people at the London Stock Exchange who do such remarkable work to support the companies, investors and intermediaries in our markets.”
What market reforms is UK looking at?
The UK government and the Labour Party have both expressed intentions to reform London’s public markets to attract more listings and ensure that pension funds invest more in UK companies.
The UK markets, rich in oil and mining companies, were heavily affected by the economic volatility during the pandemic. However, recent data suggests a more favourable outlook for UK tech companies, with a survey indicating that 72 per cent of British tech firms are more interested in listing in London than overseas.
UK Chancellor Jeremy Hunt highlighted the resilience of London’s stock market, stating, “I think London’s stock market demise is massively overstated. We do have challenges, and we’re addressing those challenges.” The Labour Party has also been working to assure investors of its stability, with a strong Labour majority expected in the upcoming UK general election .
As France navigates its political challenges, London’s proactive measures and recent successes position it favourably in the competitive landscape of global financial markets.
With inputs from agencies
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