The UK's main stock market has regained its position as Europe's most valuable market for the first time in nearly two years.
The total value of companies listed on the London Stock Exchange (LSE) reached $3.18 trillion on Monday, surpassing the $3.13 trillion valuation of Paris-listed companies, according to Bloomberg data.
Market dynamics
This turnaround is seen as a milestone, with the French market witnessing a decline due to election uncertainty, while the UK market shows signs of recovery after several years of poor performance. The London Stock Exchange maintained its lead for many years until November 2022, when it was surpassed by Paris. Analysts at the time attributed the London Stock Exchange's decline to factors such as the repercussions of former Prime Minister Liz Truss' mini-budget, the weakness of the pound sterling, recession fears, and Britain's exit from the European Union.
The current political climate
Analysts highlight that market investors in general do not like uncertainty. The recent decline in the French market is due in part to the uncertainty surrounding the upcoming elections, as President Emmanuel Macron called for early elections after the victory of the right-wing National Rally party led by Marine Le Pen in the European elections. Hargreaves Lansdowne's Susanna Streeter noted that the NRA's manifesto included “unfunded spending”, which did not inspire market confidence.
In the United Kingdom, both the Labor Party and the Conservative Party are working to reassure investors. Labour, currently leading in the polls, aims to present itself as a “safe hand”, while Chancellor Jeremy Hunt stressed efforts to address market challenges.
Challenges and opportunities
One of the big challenges facing the London Stock Exchange is competing with American stock exchanges. Many major companies, including those in the United Kingdom, have chosen to list in the United States, causing the value of US stocks to rise. The S&P All-Share Index has risen more than 85% in the past five years, while the FTSE All-Share Index has grown by less than a tenth in the same period.
However, the UK index has shown improvement since the start of the year, partly due to clarity on interest rates, which are expected to fall, making borrowing cheaper for British companies. Despite this, British stocks remain cheaper than their US counterparts relative to their earnings. AJ Bell investment director Russ Mold noted that US companies may be overvalued, while UK companies could be undervalued. He also noted that the US market's reliance on a few highly valued technology stocks may not be sustainable in the long term.