Paris lost its position as Europe’s biggest stock market to London as investors reacted to political upheaval in France in the week Emmanuel Macron called snap elections.
Shares listed on Euronext Paris had a combined value of about $3.13 trillion, according to data compiled by Bloomberg, after about $258 billion was shaved off the market capitalization of French companies last week, leaving it at $3.18 trillion (2.51 trillion pounds) of the London Stock Exchange. Separate data from the London Stock Exchange Group also suggested that the market value of UK-listed companies was higher.
Macron’s decision to call elections for the National Assembly surprised most French political analysts after his Renaissance party’s poor showing in the European Parliament elections. Polls suggest the far-right National Assembly (RN), led by Marine Le Pen and Jordan Bardella, could become the largest party in the assembly, stalling the remaining three years of Macron’s presidency and also breaking a long-standing taboo. against extremist parties.
RN’s “unfunded public spending platform” is one of the reasons financial markets are unsettled, analysts at investment bank UBS wrote in a note to clients. “The likelihood of a clear majority not emerging is high, leading to potential political instability.”
Britain’s main stock exchange lost its crown to its French rival in 2022, when British politics were seen as more unpredictable. It comes within a month of Liz Truss stepping down as prime minister after her government’s promise of unfunded tax cuts sent shockwaves through the market.
Investors now perceive lower uncertainty in the UK, despite its own general election on July 4. Most opinion polls suggest a strong Labor majority is likely, which has reduced uncertainty.
Since Macron announced the election, the euro has also weakened against the pound. The pound rose from €1.1772 on June 7, the Friday before the EU election results, to €1.19 last Friday. As the Paris stock market is priced in euros, while London stocks are priced in pounds, this currency effect boosts the market capitalization of UK stocks.
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French banks were hit by a sell-off in French assets last week. Shares in Société Générale and BNP Paribas fell by around 7%. France’s benchmark CAC 40 also suffered its biggest weekly drop since 2022.
The French turbulence was also reflected in the bond markets. The gap between French and German borrowing costs has widened to the most in seven years. This spread tends to widen when investors view French debt as riskier than German debt.
Even the largest individual stocks can have an impact. The value of the Paris stock market was inflated by luxury goods maker LVMH, which became the first European company to reach a valuation of $500 billion in 2023. Shares in the owner of brands including Louis Vuitton, Christian Dior and Tiffany have fallen 9% over the past month.
Figures provided by LSEG showed the London Stock Exchange’s total market capitalization at £5bn, nearly £2.2bn more than Europe’s next biggest bourse, Paris, at £2.81bn.
London was also ahead of Paris if equity listings alone were considered, but slightly behind Paris if restricted to domestic issuers, LSEG added.