Paris has lost its position as Europe’s largest stock market to London as investors reacted to political unrest in France in the week since Emmanuel Macron called snap elections.
Shares listed on Euronext Paris were collectively worth around $3.13 trillion after around $258 billion were removed from the market capitalization of French companies last week, putting them behind the London Stock Exchange’s $3.18 trillion (£2.51 trillion). to stand, according to data collected by Bloomberg. 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 parliament surprised most French political analysts, following a poor performance by his Renaissance party in the European Parliament elections. Polls show that the far-right National Rally (RN), led by Marine Le Pen and Jordan Bardella, could become the largest party in the assembly, an outcome that would hamper the remaining three years of Macron’s presidency and end a long-standing taboo breaking through. against extremist parties.
RN’s “platform of unfunded government spending” is one of the reasons why financial markets are unsettled, analysts at investment bank UBS wrote in a letter to clients. “There is a high chance that a clear majority will not emerge, which could lead 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. That happened within a month of Liz Truss stepping down as Prime Minister after her government’s promise of unfunded tax cuts sparked market turmoil.
Investors are now experiencing less uncertainty in Britain, despite its own general election on July 4. Most polls indicate a strong Labor majority is likely, which has reduced uncertainty.
The euro has also weakened against the pound since Macron announced the elections. Sterling rose from €1.1772 on June 7, the Friday before the EU election results, to €1.19 last Friday. Because the Paris stock market is valued in euros, while London shares are priced in pounds, this currency effect strengthens the market capitalization of UK shares.
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French banks were hit by the sell-off of French assets last week. Shares of Société Générale and BNP Paribas are both down about 7%. France’s benchmark stock index CAC 40 also suffered its biggest weekly decline since 2022.
The French unrest has also been reflected on the bond markets. The difference between French and German borrowing costs has become the largest in seven years. This spread tends to widen if investors consider French government bonds to be riskier than those of Germany.
The largest individual stocks can also have an effect. The value of the Paris stock market has been inflated by luxury goods maker LVMH, which in 2023 became the first European company to reach a valuation of $500 billion. Shares in the owner of brands such as Louis Vuitton, Christian Dior and Tiffany have fallen 9% in the past month.
Data provided by the LSEG shows that the total market capitalization of the London Stock Exchange is £5 trillion, almost £2.2 trillion more than the next largest European exchange, Paris, at £2.81 trillion.
London was also ahead of Paris when only share quotes were taken into account, but marginally behind Paris when limited to domestic issuers, the LSEG added.