The total value of companies listed on the London Stock Exchange (LSE) has achieved a significant milestone, reaching $3.18 trillion on Monday, and thereby surpassing the $3.13 trillion valuation of its Parisian counterparts, according to Bloomberg data.
This shift is viewed as a substantial milestone, occurring against a backdrop of the French market’s downturn due to election-related uncertainties, while the UK market exhibits signs of recovery following years of underperformance. The LSE had consistently held the lead for numerous years until November 2022, when it was briefly overtaken by Paris. Analysts at the time attributed the LSE’s decline to multiple factors, including the fallout from former Prime Minister Liz Truss’s mini-Budget, a weakened pound, recession fears, and Brexit.
Market analysts underscore that investors generally have an aversion to uncertainty. The recent decline in the French market is partially attributable to the unpredictability attendant to the forthcoming election, with President Emmanuel Macron instigating a snap election subsequent to Marine Le Pen’s right-wing National Rally triumphing in the European elections. Hargreaves Lansdown’s Susannah Streeter pointed out that National Rally’s manifesto is laden with “unfunded spending,” which fails to instil market confidence. Conversely, in the UK, both the Labour and Conservative parties are making concerted efforts to reassure investors. Labour, which is currently leading in the polls, seeks to position itself as a “safe pair of hands,” while Chancellor Jeremy Hunt has focused on addressing market challenges.
A significant hurdle for the LSE has been its competition with American exchanges. Numerous large firms, including those based in the UK, have opted to list in the US, thereby inflating the value of American stocks. Notably, the S&P All-Share index has surged by over 85% in the past five years, in stark contrast to the FTSE All-Share index, which has grown by less than a tenth during the same period. However, the UK index has demonstrated improvement since the beginning of the year, owing partly to the clarification on interest rates, which are anticipated to decrease, consequently making borrowing more affordable for British firms. Despite these advancements, British stocks are still cheaper than their American equivalents relative to earnings. AJ Bell’s investment director Russ Mould suggested that US companies might be overvalued, while UK firms could be undervalued. He also noted that the US market’s dependence on a limited number of highly valued tech stocks might not be sustainable in the long term.
In summary, London has reclaimed its position as Europe’s largest stock market, driven by a combination of election-related uncertainties in France and a recovering UK market. While the road ahead presents challenges, particularly in competing with American exchanges, the outlook remains cautiously optimistic with expected decreases in interest rates potentially bolstering further growth.
