London has reclaimed its position as Europe’s biggest stock market, just two years after losing the title to Paris. This resurgence comes amidst significant turmoil in French markets following the surprise election called by President Emmanuel Macron, which has particularly impacted bank shares.
In contrast, London shares, which had been in a prolonged slump, are showing renewed vitality. Bankers report that clients are eager to push deals forward again, resulting in increased flotations and rising share prices. The FTSE 100 has risen by 7% over the past year, with a 5-point increase today, bringing it to 8150.
Currently, French stocks are valued at approximately $3.13 trillion, just shy of the UK’s $3.18 trillion. The CAC 40 Index has erased all its gains for 2024. Investors are finding some comfort in the UK’s stable inflation and interest rates, along with the strong likelihood of a Labour victory in the upcoming election. This sentiment was first reported by Bloomberg. Ulrich Urbahn, head of multi-asset strategy and research at Berenberg, noted that UK stocks are attractive not only for their valuation but also as portfolio diversifiers due to their appealing sector profile. Additionally, political uncertainty seems more pronounced in other regions at present.
City analysts predict that regardless of the outcome in French politics, it is unlikely that a clear majority winner will emerge from the elections. Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, commented on France’s fiscal challenges under EU rules, which will likely constrain any government’s fiscal flexibility.
While political analysts critique the minimal differences between Labour and the Conservative Party on future tax policies, this similarity is currently viewed as more favourable compared to other European markets. Dean Turner of UBS Global Wealth Management noted that the negligible distinctions between the two major parties from a macroeconomic perspective, coupled with stable opinion polls, suggest minimal impact on UK assets from the election results. UBS continues to rate UK equities highly.
The French market’s heavy dependence on global luxury brands, which have recently been under pressure, is also noted. Richard Hunter of ii highlighted the significant reliance on LVMH shares, which have dropped by 18% over the past year, and a week of political uncertainty that led to a 7% decline in the main index, severely impacting the French market.
In contrast, the UK is beginning to attract overseas investors after a prolonged period of underperformance. This is due to its stable, cash-generative companies that are currently undervalued by historical standards. The FTSE 100 reached record highs last month, with early signs of increased IPO and M&A activity that could further stimulate the market. Russ Mould of AJ Bell pointed out that merger and acquisition activity underscores the value present in the London market, as financial and trade buyers seize bargains. He cited the old market adage that the best cure for low prices is low prices, as they ultimately attract buyers.
The UK market also benefits from an independent central bank, the extensive City ecosystem of advisers, bankers, brokers, lawyers, and accountants, the rule of law, and, from the perspective of potential overseas buyers, a relatively cheap currency that has yet to recover fully since the Brexit vote eight years ago.
Fidelity Special Values PLC (LON:FSV) aims to seek out underappreciated companies primarily listed in the UK and is an actively managed contrarian Investment Trust that thrives on volatility and uncertainty.
