France is challenging the UK for the title of Europe’s largest stock market

Paris is challenging London’s leadership as Europe’s biggest stock market and eating away at Britain’s post-Brexit position as the continent’s most important financial centre.

The market value of all companies listed in the French capital increased from $1.8 billion at the beginning of 2016 to $2.83 billion, close to the value of London stocks at $2.89 billion, according to Refinitiv.

“This gap between London and Paris in the domestic market is much smaller than it used to be or should be,” said William Wright, founder of New Financial, a British think tank.

“This is the result of the poor performance of UK equities, the poor pipeline and performance of UK new issues and the terrible performance of the pound. This is clearly not good news for London – and Brexit plays a big role in all three.”

Line chart of market capitalization (on Datastream Total Market Indices, tn $) showing the French market catching up to the UK since the Brexit vote

The narrowing gap worries U.K. policymakers, who are eager to tout the benefits of leaving the trade bloc and restore London’s post-Brexit appeal while taking Paris, Frankfurt and Amsterdam out of its day-to-day operations.

London retained its status as the world’s leading center for foreign exchange and derivatives trading, although its share of both markets declined.

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But the gap it traditionally enjoyed in terms of shares over other European centers has evaporated since Britain left the single market. More than €6 billion of European-listed shares traded in the City on the first day of trading, allowing Amsterdam to take the crown as the most active stock market.

The dollar value of shares on the London stock exchanges has been depressed by the fall of the pound since 2016, the year of the Brexit referendum. The British pound has fallen by almost a fifth against the dollar since January 2016, while the euro has weakened by only about 4 percent.

“The British pound has depreciated significantly since the Brexit vote, leading to higher M&A activity and private equity and corporate buyers taking advantage of the UK’s valuation discount in other equity markets,” said Sue Noffke, head of UK equities at Schroders. .

High-profile departures from acquisitions include Arm, Shire, SABMiller, Sky, Cobham, Meggitt, Wm Morrison and insurer RSA.

London is ahead of Paris by a larger margin when you take into account certificates of deposit, the bank certificates that reflect ownership of shares in foreign companies, which have traditionally accounted for most of London’s total market value. Including depositary receipts, London’s total market capitalization was $6.2 billion, compared with $3.7 billion in Paris, according to the London Stock Exchange.

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In order to restore its traditional leadership role, the UK government aims to finalize proposals to reform the City of London in the coming months. Among the planned changes are the modifications the listing system to make listing companies more attractive.

However, Schroders said the UK attracted 60 new listings that raised more than $100 million in the past three years, worth a total of $26 billion, while France’s 19 listings brought in $8 billion.

“The increase in new listings is a better reflection of the health of the stock market,” said Andrew Lapthorne, quantitative strategist at Société Générale.

Nevertheless, competition in Paris will intensify as France is considered by fund managers to be the favorite European stock market.

A net 30 percent of fund managers said in November that they intend to “overweight” French stocks over the next 12 months, according to a Bank of America survey of 161 investment managers with total assets of $313 billion.

The Liz Truss government’s ill-received “mini-budget” has severely damaged fund managers’ confidence, with the number of those looking to outperform the UK plummeting from 37 per cent net in September to zero in November.

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Andreas Bruckner, strategist at BofA, said fund managers had reduced their overweight positions in European energy shares – a key sector of the UK equity market – over the past three months and had moved to a net “overweight” in industrials over the same period. , which sector has more influence on the French stock market.

Ben Ritchie, head of UK and European equities at Abrdn, the Edinburgh-based asset manager, said structural differences between the two equity markets had contributed to the shift in fortunes between the UK and France.

“Performance is challenging some of the UK’s most important sectors, including banks, pharmaceuticals, natural resources and even oil companies. France enjoyed a better tailwind with luxury companies performing strongly and greater exposure to industrials and technology plays,” said Ritchie.

“Shareholders in British companies are overly concerned about dividend payments, which are seen as sacrosanct, but this has led to underinvestment, while there has been a radical change in French capitalism, which is now much more focused on growth,” he added.