London is now Europe’s biggest equity market, replacing Paris

Investors reacted negatively to the political turmoil in France since Emmanuel Macron announced snap elections.

Bloomberg data shows that the value of Euronext Paris stocks is about $3.13tn, after $258bn has been taken off the market cap of French companies. This puts it behind London Stock Exchange’s $3.18tn. (£2.51tn). Separate data from London Stock Exchange Group suggested that the market value of UK listed companies was also higher.

The decision by Macron to call elections for the national assembly was a surprise, especially after his party’s poor performance in the European Parliament elections. The National Rally, led by Marine Le Pen, and Jordan Bardella could be the largest party at the assembly. This would have a negative impact on the remaining three-years of Macron’s term, as it would break a taboo that has been in place against extreme parties.

Analysts from UBS wrote in a client note that RN’s platform of unfunded spending is one reason for the instability of financial markets. The likelihood of a lack of a clear majority is high. This could lead to political instability.

In 2022, the UK’s major stock exchange lost to its French counterpart when British politics were seen as unpredictable. This happened within a few months of Liz Truss’ resignation as Prime Minister, after the market was sparked by her government’s unfunded promises of tax cuts.

Investors perceive less uncertainty in the UK despite its own election on 4th July. Most surveys indicate that a Labour majority will be likely. This has led to a reduction in uncertainty.

Since Macron announced his election, the euro has also fallen against the pound. The pound rose from €1.1772 the Friday prior to the EU elections results on 7th June, to €1.19 the last Friday. The Paris stock exchange is priced in euros while London’s stocks are priced in pounds. This currency effect boosts the market cap of UK stocks.

The sale of French assets last week has hurt France’s banks. The shares of BNP Paribas and Societe Generale have both dropped by about 7%. The benchmark CAC 40 index in France also experienced its largest weekly drop since 2022.

Bond markets have also reflected the turmoil in France. The difference between borrowing costs in France and Germany has increased to its largest level in seven years. This spread widens when investors view French debt as more risky than German debt.

Individual stocks of the largest companies can also affect stock market values. Luxury goods manufacturer LVMH has inflated the value of Paris’s stock market. In 2023, it became the first European company to reach a $500bn valuation. The shares of the company that owns brands such as Louis Vuitton Christian Dior, Tiffany and Louis Vuitton are down by 9% over the last month.

The London Stock Exchange (LSEG) provided data that showed the total market capitalisation of the London Stock Exchange is £5tn. This is nearly £2tn higher than the second largest European venue in Paris at £2.81tn.

The LSEG said that London also ranked ahead of Paris if only share listings were taken into consideration, but was marginally behind Paris if domestic issuers are included.

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