Paris has lost its position as Europe’s largest equity market to London, as investors reacted to political turmoil in France in the week since Emmanuel Macron called snap elections.
Stocks listed on Euronext Paris were collectively worth about $3.13tn after about $258bn was knocked off the market capitalisation of French companies last week, putting it behind the London Stock Exchange’s $3.18tn (£2.51tn), according to data compiled by Bloomberg. Separate data from the London Stock Exchange Group also suggested the market value of UK-listed companies was bigger.
Macron’s decision to call national assembly elections took most French political analysts by surprise, after a poor showing by his Renaissance party in the European parliamentary elections. Polls suggest 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 hobble the remaining three years of Macron’s presidency, as well as breaking a longstanding taboo against extremist parties.
RN’s “platform of unfunded public spending” is one reason why financial markets have been unsettled, wrote analysts from the investment bank UBS in a note to clients. “The probability of no clear majority emerging is high, leading to potential political instability.”
The UK’s main stock exchange lost its crown to its French rival in 2022 when British politics was seen as more unpredictable. That occurred within a month of Liz Truss resigning as prime minister, after her government’s promise of unfunded tax cuts triggered market turmoil.
Investors now perceive lower uncertainty in the UK, despite its own general election on 4 July. Most polls indicate a strong Labour 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 7 June, the Friday before the EU election results, to hit €1.19 last Friday. As Paris’s stock market is valued in euros, while London stocks are priced in pounds, this currency effect bolsters the market capitalisation of UK stocks.
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France’s banks were hit by last week’s sell-off of French assets. Shares in Société Générale and BNP Paribas have both fallen about 7%. France’s benchmark CAC 40 share index also suffered its biggest weekly fall since 2022.
The French turmoil has also been reflected in bond markets. The gap between French and German borrowing costs widened to the most in seven years. That spread tends to widen when investors consider French debt to be riskier than Germany’s.
The largest individual stocks can also have an effect. The value of Paris’s stock market has been inflated by the luxury goods maker LVMH, which in 2023 became the first European company to hit a $500bn valuation. Shares in the owner of brands including Louis Vuitton, Christian Dior and Tiffany are down 9% in the past month.
Data supplied by the LSEG showed that the London Stock Exchange’s total market capitalisation is £5tn, nearly £2.2tn more than the next largest European venue, Paris, at £2.81tn.
London was also ahead of Paris if share listings alone were considered, but marginally behind Paris if this was restricted to domestic issuers, the LSEG added.