(Bloomberg) — France’s political upheaval has seen Paris lose its place as Europe’s biggest stock market to London, less than two years after it won that title from the UK.
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President Emmanuel Macron’s shock announcement of snap elections sparked a rout that wiped about $258 billion off the market capitalization of French firms last week. Shares in banks Societe Generale SA, BNP Paribas SA and Credit Agricole SA – all large holders of government debt – lost more than 10% each.
Stocks in the country are now collectively worth about $3.13 trillion, narrowly missing out on the UK at $3.18 trillion, according to data compiled by Bloomberg. The CAC 40 index has erased all of its gains for 2024 — a sharp reversal from record highs a month ago.
“We are in a period where there is no certainty for three to four weeks and the market unfortunately could become more volatile,” said Alberto Tocchio, a portfolio manager at Kairos Partners.
At the same time, a combination of factors including improving global growth and an increase in merger activity has made UK shares popular with investors again. Although the country is gearing up for its own general election, the result is seen as more stable with the opposition Labor Party leading the polls by a wide margin.
“We like UK equities for valuation reasons, but also as a portfolio diversifier given their attractive sector profile,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “In addition, political uncertainty appears to be higher elsewhere, at least for now.”
The FTSE 100 index has hit all-time highs this year, boosted by export-dependent stocks such as Shell Plc and Unilever Plc. It has outperformed the Euro Stoxx 50 index in the past three months, with jet engine maker Rolls-Royce Holdings Plc among the biggest gainers.
Globally, the UK now ranks as the sixth largest stock market.
In France, market strategists are still not convinced of a return to stocks due to uncertainty about public finances and politics. In addition to the banks, toll road operators Vinci SA and Eiffage SA have fallen over concerns that the motorways could be renationalised if Macron’s party loses power.
The news comes at a time when France’s heavyweight luxury stocks were already under pressure from an uneven recovery in China.
“Given the unusual political conundrum currently and the high headline risk between now and the election, we see no reason to rush to buy the dip,” Barclays Plc strategist Emmanuel Cau said in a June 12 strategy note. The two-round voting takes place on June 30 and July 7.
However, France’s CAC 40 recovered 0.5% on Monday, outperforming a 0.3% rise in the Stoxx Europe 600 Index.
Investors see some reason to remain cautious in the UK as well. The July 4 election is likely to mark the biggest political shake-up since Brexit and the new government will have limited fiscal space and face bond scrutiny.
The country’s stock market has also underperformed its US counterparts for years, and activists have called for companies to list in New York.
–With assistance from Michael Msika and Farah Elbahrawy.
(Adds Monday’s stock move in 12th paragraph)
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