Stock Market Battle Royale: How France’s CAC 40 overtook London’s LSE in the Battle for European Supremacy
Since I started learning about stock markets around the world. It has typically been driven by a US focus. In many universities worldwide, lecture slides and exercises will use US examples and provide US data. A recent battle between two larger stock exchanges in Europe has ignited. As of November 12, 2022, London lost its position as the most valuable European stock market.
Currency swings have led to a close call in recent months as to which stock market is the most valuable but let’s take a look at some of the key events leading up to the levelling up between the stock markets in the respective countries.
The history between the UK and French stock markets is one of competition and relative performance. The London Stock Exchange (LSE) has historically been one of the largest and most important stock markets in the world, and it has long been considered a major financial centre. However, in recent years, the French stock market, represented by the CAC 40 index, has been gaining ground and has overtaken the LSE in terms of market capitalization.
This is partly due to the relative performance of the two economies. The UK has faced a number of economic challenges in recent years, including the Brexit vote and the COVID-19 pandemic. These factors have contributed to a weaker pound and slower economic growth, which have affected the performance of UK stocks. In contrast, the French economy has been relatively stable, and the CAC 40 has performed well as a result.
Another factor that has contributed to the rise of the French stock market is the success of French luxury goods makers such as LVMH and Hermès. These companies have seen a bounce-back in demand from China, which has boosted their share prices and helped to drive the overall performance of the CAC 40.
In addition, the UK has been more heavily exposed to sectors such as mining, oil and gas, banks, insurers, utilities and telecoms which have struggled with the low-interest rates and other economic factors.
Britain’s stock market has lost its position as Europe’s most-valued, with France taking the top spot, data shows. A weak pound, fears of a recession in the UK, and surging sales at French luxury goods makers are thought to be behind the shift, according to data from Bloomberg. It’s the first time Paris has overtaken London since records began in 2003. It comes as the UK is expected to fall into recession this year, although the French economy is also under pressure.
As of mid-November, the combined value of British shares is now around $2.821 trillion (£2.3 trillion), while France’s are worth around $2.823 trillion, Bloomberg calculates. It marks a huge reversal of fortunes for the London Stock Exchange, which was worth about $1.4 trillion more than its Parisian rival back in 2016. This huge swing is something that would have been unheard of during my time at the University over 10 years ago. The French have been catching up for some time, but shares in the UK’s medium-sized companies have been performing particularly badly this year as consumers cut back their spending and businesses struggle with higher costs. The cost of the living crisis on UK shores is really starting to take effect in the UK stock market.
London’s FTSE 250 share index the one which contains a lot of mid-sized companies focused on the UK, has dropped significantly by almost 17% in the last 12 months. A number of key British businesses have suffered large losses from the pub chain Mitchells and Butlers to M&S, and British businesses have been struggling. Currency has been playing major havoc with UK firms who have also been hit by a weaker pound. This has meant importing goods has been much more expensive. Across the channel, the euro has also fallen moderately against the dollar but less sharply. The French stock market has also been boosted by its luxury goods makers, which have seen a bounce-back in demand from China.
To provide an example shares in LVMH which owns Louis Vuitton, have surged 22% in the last six months, while Hermès is up 37%. Chinese shoppers accounted for around 35% of global demand for luxury goods before the pandemic, according to Bloomberg data so it could be likely for a strong performance when China re-opens for travel after the restrictions start to ease further. Travel is open again to European travellers from China.
The loss of the top spot by stock market valuation to Paris is seen as a blow to the City’s prestige. Since the Brexit vote in June 2016, Paris’ CAC-40 index is up 47% and London’s FTSE 100 has advanced by just 16%. Obviously, such as gap is not solely down to Brexit. The London market is more heavily exposed to unpredictable sectors such as miners and oils, which have struggled in a zero-interest rate environment, such as banks and insurers, and ones that can be seen as dour plodders, such as utilities and telecoms.
The recession looms as the UK economy starts to shrink, and energy and food prices have soared in the UK this year due to the war in Ukraine. Many British homeowners have also seen a sharp rise in mortgage rates after the mini-Budget drove up UK borrowing costs. It has put pressure on consumer spending and added to existing problems in the economy, experts say, including weaker trade since Brexit. The UK is the only G7 nation whose economy is still smaller than it was before the pandemic.
Between July and September, the economy shrunk by 0.2% and the Bank of England has warned the country faces its longest recession since records began. Last year, Amsterdam ousted London as the largest financial trading centre in Europe, although this was based on the total value of traded shares rather than companies.
International companies, which make up the bulk [value] of all major exchanges, choose where to list and can vary that choice swiftly and with little apparent reason. The future will depend more on London retaining its edge in professional services in terms of money raising and attracting international businesses to list in London. The jury, post-Brexit, is still out on that.
Overall, the competition between the UK and French stock markets is ongoing and is likely to be influenced by a variety of economic, political and market factors over the next year.
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