London Reclaims Title as Europe’s Largest Stock Market

The UK’s main stock market has reclaimed its position as Europe’s most valuable 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, overtaking the $3.13 trillion valuation of companies listed in Paris, according to Bloomberg data.

Market Dynamics

This shift is seen as a significant milestone, with the French market experiencing a slump due to election uncertainties, while the UK market shows signs of recovery after several years of underperformance. The LSE had maintained its lead for many years until November 2022, when it was overtaken by Paris. Analysts at the time attributed the LSE’s decline to factors such as the fallout from former Prime Minister Liz Truss’s mini-Budget, a weak pound, recession fears, and Brexit.

Current Political Climate

Analysts highlight that market investors generally dislike uncertainty. The recent French market decline is partly due to the uncertainty surrounding the upcoming election, with President Emmanuel Macron calling a snap election following Marine Le Pen’s right-wing National Rally’s victory in the European elections. Hargreaves Lansdown’s Susannah Streeter pointed out that National Rally’s manifesto contains “unfunded spending,” which does not inspire market confidence.

In the UK, both the Labour Party and the Conservative Party are working to reassure investors. Labour, currently leading in the polls, aims to present itself as a “safe pair of hands,” while Chancellor Jeremy Hunt has emphasised the efforts to address market challenges.

Challenges and Opportunities

One of the significant challenges for the LSE has been competing with American exchanges. Many large firms, including those based in the UK, have chosen to list in the US, driving up the value of American stocks. The S&P All-Share index has increased by over 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 decrease, making borrowing cheaper for British companies. Despite this, British stocks remain cheaper than their American counterparts relative to their earnings. AJ Bell’s investment director Russ Mould suggested that US companies might be overvalued, while UK ones could be undervalued. He also noted that the US market’s reliance on a few highly valued tech stocks might not be sustainable in the long term.