KEY POINTS

• LSE has regained its position as Europe’s most valuable stock market – the first time in 2 years
• Value of companies of LSE reached $3.18 trillion on Monday, surpassing the $3.13 trillion value of companies listed in Paris
• French decline comes amid election uncertainty with Marine Le Pen’s manifesto including “unfunded spending”
• The UK market had dipped in recent years due to several major factors: Ex-PM Liz Truss’ mini-budget, a weak pound, Brexit and recession fears

London becomes Europe’s largest stock market again

The UK’s main stock market has regained its position 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 $3.13 trillion value of companies listed in Paris, according to Bloomberg data.

Although the valuations have fluctuated and remain close, analysts see this as a significant milestone. They attribute the French market’s decline to election-related uncertainty, while the UK market is recovering from years of underperformance.

The LSE had been Europe’s largest stock market for many years until November 2022, when Paris took the lead. Analysts then blamed the LSE’s dip on factors such as former Prime Minister Liz Truss’ mini-Budget, a weak pound, recession fears, and Brexit.

In 2016, the LSE was worth about $1.4 trillion more than its Parisian counterpart. Now, with President Emmanuel Macron calling a snap election following Marine Le Pen’s National Rally victory in European elections, market uncertainty has increased in France. Analysts note that market investors typically dislike uncertainty.

Susannah Streeter from Hargreaves Lansdown pointed out that Le Pen’s manifesto includes “unfunded spending,” which does not appeal to the market. Financial markets often react negatively to unclear funding sources for government pledges because it affects bond values.

In contrast, the UK’s Labour Party, currently leading in polls, and the Conservative Party are both trying to reassure investors of their economic plans. Chancellor Jeremy Hunt recently emphasised that concerns about London’s stock market decline are exaggerated, acknowledging challenges but stating efforts to address them.

One major challenge for the LSE over the past decade has been competition from American exchanges. Many big firms, including UK-based ones, have opted to list in the US, boosting the value of American stocks and attracting even more companies to list there.

The S&P All-Share index in the US has soared over 85% in the past five years, while the UK’s FTSE All-Share index has increased by less than 10% in the same period. However, the UK index has seen improvement this year, partly due to expected interest rate reductions, making borrowing cheaper for British companies.

Despite this, British stocks remain cheaper than American stocks relative to their earnings. AJ Bell’s investment director Russ Mould suggests that investors might be overvaluing US companies and undervaluing UK ones. He also noted that the US exchanges rely heavily on a few highly valued tech stocks, which might not be sustainable in the long term. “If everyone is sitting on one side of the boat, it’s going to tip over eventually,” Mould said.