image source, Getty Images
- Author, Mitchell Labiak
- Role, Business reporter
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Britain’s main stock market has reclaimed its crown as Europe’s most valuable for the first time in almost two years, data shows.
The total value of companies listed on the London Stock Exchange (LSE) reached $3.18 trillion on Monday, surpassing the total value of companies listed in Paris of $3.13 trillion, according to Bloomberg data.
Both valuations have moved since then and remain close, but analysts are describing it as a milestone.
The French market is said to have slumped amid uncertainty surrounding his election, while the UK market is recovering after several years of underperformance.
Analysts at the time blamed the LSE’s performance on the impact of former prime minister Liz Truss’s mini-budget, a weak pound, recession fears and Brexit.
The LSE was worth about $1.4 trillion more than its Paris rival in 2016.
Analysts say market investors generally don’t like uncertainty – and there are many questions about what the French snap election called by the president will mean.
President Emmanuel Macron called early elections earlier this month after his rival Marine Le Pen’s right-wing National Assembly won the European elections.
But Hargreaves Lansdown head of money and markets Susannah Streeter suggested Le Pen’s manifesto included “unfunded spending”.
“They’re not so focused on beating the market,” Ms. Streeter said.
Financial markets often react badly when they don’t know where to get the money from government promises.
This is because it affects the value of bonds, which are money that investors lend to the government at a rate agreed on in the market.
If investors believe that government or potential government policies don’t add up, the bond’s interest rate, known as the yield, tends to rise.
This then hurts the value of listed companies because if bond yields are very high, investors can often make more money by lending to the government than by investing in the company’s shares.
Looking to the UK, Ms Street added that Labour, currently leading the polls ahead of the UK general election, was trying to reassure investors and the City that it was a “safe pair”. .
The Conservative Party is also trying to convince investors of its approach.
Chancellor Jeremy Hunt told the Wall Street Journal CEO summit last month: “I think the demise of the London stock market is vastly overstated.”
“We have challenges and we are addressing them.”
One of the biggest challenges the LSE has faced over the past decade has been reaching investors and companies tempted by US exchanges.
A number of large firms, including those based in the UK, have chosen to list in the US rather than the UK.
This has driven up the value of US stocks, which then encourages even more companies to list there.
The S&P All-Share Index, which tracks the value of every publicly traded company in the U.S., is up more than 85% over the past five years.
The equivalent FTSE All-Share Index rose by less than a tenth over the same period.
However, the UK index has risen since the start of this year, which AJ Bell chief investment officer Russ Mold said was partly due to interest rate clarity.
They are expected to fall sometime this year, meaning UK companies can borrow money for less.
Despite this, UK stocks are much cheaper relative to their earnings than US stocks, and Mold suggests that investors may be overvaluing US companies and undervaluing British ones.
He noted that major U.S. stock markets are heavily reliant on a handful of high-value tech stocks, including Google, Apple and Amazon, but he didn’t believe that would be sustainable in the long term.
“If everyone sits on one side of the boat, eventually it will capsize,” he said.