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Britain’s main stock market has regained its title as Europe’s most valuable for the first time in nearly two years, data shows.
The total value of companies listed on the London Stock Exchange (LSE) reached $3.18 trillion on Monday, surpassing the total value of Paris-listed companies at $3.13 trillion, according to Bloomberg data.
Valuations for both have changed since then and remain close, but analysts see this as a milestone.
They said French stocks had plunged on election uncertainty, while British stocks were recovering after several years of underperformance.
The London Stock Exchange has been Europe’s largest stock market for many years. Surpassed by November 2022.
At the time, analysts blamed the LSE’s performance on former Prime Minister Liz Truss’s mini-budget, a weak pound, recession fears and the impact of Brexit.
In 2016, the London Stock Exchange’s market capitalization was about $1.4 trillion higher than its Paris rival.
Analysts say market investors generally don’t like uncertainty — and there are many questions about what the president’s early announcement of the French election means.
Earlier this month, French President Emmanuel Macron called early elections after the right-wing National Rally party led by his rival Marine Le Pen won the European elections.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said Le Pen’s manifesto contained “unfunded spending”.
“They’re not so focused on winning the market,” Ms. Streeter said.
Financial markets tend to react adversely when they don’t know where the money promised by the government will come from.
This is because it affects the value of bonds, which are the money that investors lend to the government at the interest rate agreed by the market.
If investors believe that the policies of a government or potential government are irrational, bond interest rates (i.e. yields) will rise.
This hurts the value of public companies because if bond yields are high, investors can often make more money by lending to the government than by investing in company stocks.
Looking ahead to the UK, Ms Street added that Labour, which is currently leading in opinion polls ahead of the UK general election, has been trying to reassure investors and the City of London that it is “reliable”.
The Conservatives have also been trying to convince investors of their approach.
“I think the decline in the London stock market has been greatly exaggerated,” U.K. Chancellor of the Exchequer Jeremy Hunt told the Wall Street Journal’s CEO Council summit last month.
“We do have challenges and we are meeting them.”
One of the biggest challenges facing the London Stock Exchange over the past decade has been marketing its products to investors and companies that have gravitated toward U.S. exchanges.
Many large companies, including those headquartered in the UK, choose to list in the US rather than in the UK.
This pushed up the value of U.S. stocks, which in turn encouraged more companies to list in the U.S.
The Standard & Poor’s All-Share Index, which tracks the value of all publicly traded U.S. companies, has surged more than 85% over the past five years.
During the same period, the FTSE All-Share Index, which is of similar size, rose by less than one-tenth.
However, the UK index has recovered since the start of the year, which Russ Mould, investment director at AJ Bell, said was partly due to clarity on interest rates.
Interest rates are expected to fall this year, meaning British businesses will be able to borrow money more cheaply.
Still, UK stocks are much cheaper than US stocks relative to earnings, and Mould thinks investors may be overvaluing US companies and undervaluing UK ones.
He noted that major U.S. exchanges are heavily dependent on a handful of highly valued tech stocks, such as Google, Apple and Amazon, but he doesn’t think that will last long.
“If everyone sits on one side of the boat, it will eventually tip over,” he said.
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