(qlmbusinessnews.com Tues. 18th June, 2024) London, UK —
British Market Bounces Back: London Becomes Europe’s Largest Again
London has once again emerged as Europe’s premier stock market, reclaiming its position for the first time in almost two years, according to recent data.
On Monday, the total market value of companies listed on the London Stock Exchange (LSE) reached $3.18 trillion, surpassing the $3.13 trillion valuation of companies listed in Paris, as reported by Bloomberg.
Although these valuations continue to fluctuate and remain close, analysts consider this a significant milestone. They attribute the decline of the French market to uncertainties surrounding its election, whereas the UK market is rebounding after several years of underperformance.
The LSE had maintained its status as Europe’s largest stock market for many years until November 2022, when it was overtaken. Analysts at the time blamed its downturn on the repercussions of former Prime Minister Liz Truss’s mini-budget, a weak pound, recession fears, and Brexit.
Back in 2016, the LSE was valued at approximately $1.4 trillion more than its Parisian counterpart.
Market analysts suggest that investors generally shun uncertainty, and there are numerous questions about the implications of the French snap election called by President Emmanuel Macron. This election was triggered earlier this month following a victory for his rival Marine Le Pen's right-wing National Rally in European elections.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, indicated that Le Pen’s manifesto includes “unfunded spending.” She stated, “They are not so focused on winning over the market.”
Financial markets typically react negatively when there is ambiguity about how a government will finance its promises. This uncertainty impacts the value of bonds, which are essentially loans that investors give to the government at market-agreed interest rates. If investors doubt a government’s financial plans, the yield on bonds tends to rise, adversely affecting the value of listed companies. High bond yields can make government loans more attractive than investing in shares.
In the UK, Ms Streeter noted that the Labour Party, currently leading in the polls ahead of the general election, is striving to assure investors and the City of its reliability. The Conservative Party is also working to convince investors of its strategy.
Chancellor Jeremy Hunt, addressing the Wall Street Journal’s chief executives’ council summit last month, said, “I think London’s stock market demise is massively overstated. We do have challenges, and we’re addressing those challenges.”
One of the major challenges the LSE has faced over the past decade is competing with American exchanges for investors and companies. Several prominent firms, including UK-based ones, have opted to list in the US instead of the UK. This trend has boosted the value of American stocks, further encouraging more companies to list there.
The S&P All-Share Index, which tracks the value of all listed companies in the US, has surged by over 85% in the past five years. In contrast, the FTSE All-Share Index has increased by less than 10% in the same period.
However, the UK index has seen an uptick since the beginning of this year, which AJ Bell's investment director, Russ Mould, attributes partly to clearer expectations regarding interest rates. Interest rates are anticipated to decrease later this year, enabling British companies to borrow money at lower costs.
Despite this, British stocks remain much cheaper than their American counterparts relative to their earnings. Mould suggests that investors may be overvaluing US companies while undervaluing UK ones. He noted that major US exchanges rely heavily on a few highly valued tech stocks, including Google, Apple, and Amazon, and expressed doubts about the sustainability of this trend. “If everyone is sitting on one side of the boat, it's going to tip over eventually,” he remarked.
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