Why the London Stock Exchange is no longer the most valuable in Europe

The UK Stock Exchange has lost its spot as Europe’s most valuable stock market — being overtaken by the French stock exchange, according to Bloomberg data.

The devaluation of the British currency (the pound sterling), fears of recession in the United Kingdom and the increase in sales by French luxury goods manufacturers are some of the possible explanations for the phenomenon.

This is the first time Paris has surpassed London since 2003, when Bloomberg began compiling this data.

The UK is expected to enter a recession this year. But the French economy could also go into crisis.

The combined value of British shares is now about $2.821 trillion versus about $2.823 trillion for French shares, Bloomberg calculates.

This marks a major turning point, as in 2016 the London Stock Exchange was worth about $1.4 trillion more than its Parisian rival.

France’s economy has been recovering for some time. In the UK, stocks in midsize British companies have performed particularly poorly this year, as the inflationary crisis is pushing consumers and businesses to cut spending.

London’s FTSE 250 stock index — made up of midsize companies in the UK — has fallen by nearly 17% in the last 12 months.

Among the biggest drops on the British stock market are pub chain Mitchells and Butlers (which has lost more than 37% of its share value in the last year), gambling company 888 (down 70%) and retailer Marks & Spencer (40% drop).

UK businesses have also been hit by a pound devaluation after former Prime Minister Liz Truss’ economic plans were unveiled. This increased the cost of importing goods and raw materials.

The euro also fell against the dollar, but less sharply than the pound. The French stock market received a boost from luxury goods makers, who saw a rebound in demand from China.

Shares in LVMH, which owns the fashion brand Louis Vuitton, have surged 22% in the past six months. Hermès shares rose 37%. Before the pandemic, China accounted for about 35% of global demand for luxury goods, according to Bloomberg data.

“London’s fall from the top spot on account of the appreciation of the Paris market is a blow to the city’s prestige,” AJ Bell analyst Russ Mold told the BBC.

“Since the vote on [Brexit] in June 2016, Paris’ CAC-40 index was up 47% and London’s FTSE 100 was up just 16% — but the difference isn’t just due to Brexit. The London market is much more exposed to unpredictable sectors such as mining and oil; and sectors that struggle in a zero interest rate environment, such as banks and insurance companies.”

Recession on the horizon

As in many countries, energy and food prices have risen in the UK this year, in part due to the war in Ukraine.

Many Britons who are financing the purchase of their homes have also seen a sharp rise in property interest rates.

That has put pressure on household budgets and added to problems in the economy, experts say, including the slump in foreign trade since Brexit. The UK is the only G7 nation (the seven richest economies on the planet) whose GDP is still below what it was before the pandemic.

Between July and September, the economy shrank 0.2%.

Last year, Amsterdam had displaced London as Europe’s biggest financial trading center, although this was based on the total value of shares traded rather than companies.

“International companies, which make up the bulk of [valor] of all the major exchanges, choose where they want to list their shares and can change their minds quickly and without much explanation,” Brian Tora, a consultant at JM Finn, tells the BBC.

“The future will depend on London being able to maintain its advantage in the services sector in terms of raising money and attracting international companies to its stock market. After Brexit, it remains to be seen whether that will happen.”