France challenges UK for title of Europe’s biggest equities market


Paris is challenging London’s lead as the home to Europe’s biggest stock market, eating away at Britain’s position after Brexit as the continent’s most important financial centre.

The market value of all the companies listed in the French capital has soared from $1.8tn at the start of 2016 to $2.83tn, closing in on the value of London shares at $2.89tn, according to Refinitiv.

“This gap between London and Paris in the domestic market is a lot smaller than it used to be or should be,” said William Wright, founder of New Financial, a UK think-tank.

“It’s the result of the poor performance of UK stocks, the poor pipeline and performance of UK new issues, and the terrible performance of sterling. It’s clearly not great news for London — and Brexit is a big factor in all three.”

Line chart of Stock market capitalisation         (on Datastream Total Market indices, $tn) showing The French market has closed the gap on the UK since the Brexit vote

The narrowing gap has worried UK policymakers eager to tout the benefits of leaving the trading bloc and reestablish London’s post-Brexit appeal as Paris, Frankfurt and Amsterdam take slices of its daily activity.

London has retained its status as the world’s leading hub for foreign currency and derivatives trading, even though its share of both markets has slipped.

But the gap it traditionally enjoyed in equities over other European centres is evaporating since Britain left the Single Market. More than €6bn of European-listed shares typically traded in the City left on the first trading day, allowing Amsterdam to claim the crown as the most active equity market.

The value of shares on London bourses in dollar terms been pressured by a fall in the pound since 2016, the year of the Brexit referendum. Sterling has dropped by almost a fifth against the dollar since January 2016 while the euro has only depreciated by about 4 per cent.

“Sterling has depreciated significantly since the Brexit vote, leading to a higher rate of mergers and acquisitions, with private equity investors and corporate buyers taking advantage of the UK’s valuation discount to other stock markets,” said Sue Noffke, head of UK equities at Schroders.

High-profile departures resulting from takeovers include Arm, Shire, SABMiller, Sky, Cobham, Meggitt, Wm Morrison and the insurer RSA.

London trumps Paris by a wider margin when taking into account depository receipts, bank certificates that reflect ownership of shares in foreign companies, traditionally a large proportion of London’s overall market value. Including depository receipts, London’s total market capitalisation stood at $6.2tn compared with $3.7tn for Paris, according to the London Stock Exchange.

To reestablish its traditional lead, in coming months the UK government aims to finalise proposals to reform the City of London. Among the changes it plans are tweaks to the listings regime to make it more attractive for companies to list.

However the UK has attracted 60 new listings that have raised more than $100mn over the past three years, for a total value of $26bn, compared with France’s 19 listings that have drawn in $8bn, according to Schroders.

“Growth in the number of new listings provides a better reflection of the health of a stock market,” said Andrew Lapthorne, a quantitative strategist at Société Générale.

Nevertheless the competition from Paris is set to intensify as France is ranked as the favourite European stock market by fund managers.

A net 30 per cent of fund managers said in November that they intended to “overweight” French equities over the next 12 months, according to a Bank of America survey of 161 investment managers with combined assets of $313bn.

The Liz Truss government’s ill-received “mini”-Budget badly damaged confidence among fund managers, with those intending to overweigh the UK dropping sharply from a net 37 per cent in September to zero in November.

Andreas Bruckner, a BofA strategist, said that fund managers had reduced their overweight positioning over the past three months in European energy stocks — a key sector in the UK equity market — and moved over the same period to a net “overweight” in industrial companies, a sector that carries more influence in the French stock market.

Ben Ritchie, head of UK and European equities at Abrdn, the Edinburgh-based asset manager, said differences in the structure of the two stock markets had contributed to the shifting fortunes of the UK and France.

“Performance has been challenging for some of the UK’s most important sectors including the banks, pharmaceuticals, natural resources and even oil companies. France has enjoyed better tailwinds with luxury goods companies performing strongly and greater exposure to industrial companies and tech plays,” said Ritchie.

“Shareholders in UK companies are overly concerned about dividend payouts which are regarded as sacred but this has led to under-investment whereas there has been a sea-change in French capitalism which is now much more focused on growth,” he added.


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