The total capitalization of companies listed in Paris exceeded that of the City of London for the first time on Tuesday. Brexit, political instability, failing budget plan… The reasons for Britain’s decline are multiple, according to financial analyst Alexandre Baradez.
Paris can be proud of being the leading stock exchange in Europe. The total capitalization of companies listed in the French capital for the first time exceeded that of companies listed in London on Monday 14 November. And this, despite a London FTSE 100, the main British index, more resilient than the Parisian CAC 40 in 2022.
The Paris Stock Exchange has a capitalization of 2,823 billion dollars, against 2,821 billion for its great rival according to the indices published by the economic agency Bloomberg. But if the two largest financial centers in Europe appear neck and neck, this is more akin to a decline of London than to a rise in power of Paris. In June 2014, the City weighed more than 4,000 billion dollars, against 2,234 for Paris. The head of market analysis of IG a financial operator Alexandre Baradez explains this unprecedented situation for Liberation.
How to explain that the business climate has deteriorated over the long term on the side of the City?
We must distinguish several things. Of course, Brexit had an undeniable effect on London’s decline. Entrepreneurs, who wish to list their company on the stock market, seek to go where there is the most visibility in order to attract investors and gain volume on the securities in question. By leaving the euro zone, the United Kingdom gave the impression of withdrawing into itself. For many entrepreneurs, Western Europe, with stock exchanges like Paris or Frankfurt, now appears to be the most visible place.
Some large investment institutions, notably American banks, had a large part of their staff operating from England, including on European deals. Post-Brexit regulations have forced them to migrate to Europe. De facto, with greater geographical proximity, the clients of these establishments have been offered more and more investment ideas within European companies.
There are also political reasons that explain the fall of the London place. A wobbly political environment sends negative signals to investors. On this point, Boris Johnson has undermined the credibility of the United Kingdom internationally with an erratic government, embroiled in several scandals. In this case, many international creditors choose another more stable geographical area or discard the shares they already hold.
The plan that Liz Truss wanted to put in place – centered on massive tax cuts for the poorest businesses and households – was the final episode that ended up weighing down investor confidence. With an already high debt/GDP ratio, the financial markets panicked, provoking the intervention of the English Central Bank.
Rishi Sunak the new Prime Minister, is a former banker, he knows the financial mechanisms very well. it is very likely that the United Kingdom will opt for a shift that could bring companies and investors back.
The first place acquired by Paris could only be ephemeral?
Nothing is final. Two or three years ago, no one would have bet on the fact that Paris could pass London. The United Kingdom will now do everything so that the influence of the London place rises.
Take the example of the FTSE 100, the equivalent of the CAC 40, which held up better over the year as a whole. If the FTSE held up better, it was thanks to the level of the pound sterling, which fell to its lowest level against the dollar for more than 30 years. This makes the assets cheaper for foreign investors, especially those using the greenback.
Attractive assets coupled with a stable policy could lift the stock market. The UK remains a very attractive power with financial know-how, technical capabilities, and trained teams.
You spoke of a strong attraction for Europe, but why does Paris do better than Frankfurt?
There were some signals related to the profile of the French president. Emmanuel Macron presented himself as pro-business, pro-innovation. He had declared that he intended to restore France’s attractiveness. The perception of government dynamics matters to investors. France has also taken on a much more central role since the departure of Angela Merkel from a global image point of view.
Additionally, the German DAX has suffered this year as it is on the front lines of the energy crisis. Indeed, it is made up of industrial stocks. Many groups listed in the DAX have fallen. In the CAC 40, industry does not weigh as much. Above all, luxury, the locomotive of the CAC 40 representing more than 30% of capitalization, has done very well. It is a sector very dependent on China. The positive signals sent by Beijing on a possible easing of health restrictions are therefore closely followed by investors and work in favor of Paris.