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 several, according to financial analyst Alexandre Baradez.
Paris can be proud to be 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 Tuesday 15 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 very precisely shows a capitalization of 2.823 billion dollars against 2.821 billion for its big rival. But if the two largest financial centers in Europe appear neck and neck, it is more akin to a fall in London than to a rise in power in 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 to Liberation.
How to explain that the business climate has worsened in the long term on the city’s side?
We must distinguish between several things. Of course, Brexit had an undeniable effect on London’s decline. Entrepreneurs who want to list their business look to go where there is the most visibility to attract investors and get volume on the securities in question. By leaving the Eurozone, Britain gave the impression of withdrawing into itself. For many entrepreneurs, Western Europe, with exchanges such as Paris or Frankfurt, now seems to be the most visible place.
Some large investment institutions, particularly US banks, had a large proportion of their staff operating from England, including European deals. Post-Brexit rules have forced them to migrate to Europe. De facto, with greater geographical proximity, the clients of these companies have been offered more and more investment ideas in European companies.
There are also political reasons that explain the decline of the London site. A shaky political environment sends negative signals to investors. On this point, Boris Johnson has undermined the United Kingdom’s credibility internationally with an erratic government, embroiled in numerous scandals. In this case, many international creditors choose another more stable geographical area or dispose of the shares they already have.
The plan that Liz Truss wanted to introduce – centered on massive tax cuts for the poorest businesses and households – was the latest episode to end up damaging investor confidence. With an already high debt-to-GDP ratio, financial markets panicked, prompting the Bank of England to intervene.
Rishi Sunak, the new Prime Minister is a former banker, he knows the financial mechanisms very well. It is very likely that the UK will choose a transition that can bring back businesses and investors.
The first place Paris acquired could only be fleeting?
Nothing is final. Two or three years ago, no one would have bet that Paris could overtake London. The United Kingdom will now do everything to increase the influence of the London site.
Take the example of the FTSE 100, equivalent to the CAC 40, which outperformed over the year as a whole. If the FTSE held up, it was thanks to the level of the British pound, which fell to its lowest level against the dollar in more than 30 years. This makes the assets cheaper for foreign investors, especially those using the dollar.
Attractive assets combined with a stable policy can lift the stock market. The UK remains a very attractive power with financial know-how, technical capabilities and trained teams.
You talked about a strong pull for Europe, but why is Paris doing 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 his intention to restore the attractiveness of France. The perception of government dynamics matters to investors. France has also assumed a much more central role since Angela Merkel’s departure from a global image point of view.
In addition, the German DAX has suffered this year as it is on the front lines of the energy crisis. It actually consists of industrial stocks. Many groups listed in the DAX have fallen. In the CAC 40, the industry does not weigh that much. Above all, luxury, the locomotive of the CAC 40, representing more than 30% of capitalization, has done very well. It is a sector that is very dependent on China. The positive signals Beijing is sending about a possible relaxation of health restrictions are therefore closely watched by investors and work in favor of Paris.