Despite Bounceback, LSE Tumble Bodes Ill For London

Brexit and chaotic economic policy from Westminster caused the London Stock Exchange to temporarily lose its status as Europe's biggest stock market.

Battered by headwinds, in November London temporarily lost its title as Europe’s biggest stock market since record-keeping began, to Paris.

Figures from Bloomberg released Nov. 14 showed British shares worth around $2.821 trillion, and French shares edging past them at $2.823 trillion. Market capitalization figures partially reflect currency movements—the pound dropped 13% against the dollar while the euro held firmer, and Paris’ fortunes waxed as London’s waned. 

The London Stock Exchange (LSE) was worth about $1.4 trillion more than its Parisian rival in 2016, but its fortunes declined after Brexit. Since June 2016, Paris’ CAC 40 index shot up 47% while the FTSE 100 crept up just 16%. Last year, Amsterdam overtook London as Europe’s largest financial trading center based on the total value of traded shares.

Today, British listed companies are struggling as consumer confidence tumbles in the face of the UK’s long-anticipated recession. Share prices of blue-chip names like food retailer Ocado Group and JD Sports Fashion tanked this year by over 40%, a weaker pound adding to the burden on companies already battling double-digit inflation in imports.

Foreign buyers also shrank the LSE, snapping up billions of pounds worth of UK-listed companies at a steal. Asset manager Schroders noted earlier this year that “a third of the major companies on the UK stock market a decade ago have since vanished, with more than half going to overseas buyers.”

Recent attempts to shake up the UK’s listing regime have yet to win any new stock market darlings. France, meanwhile, has flourished. A resurgence in Chinese demand for luxury goods in the six months to mid-November boosted the likes of LVMH—Louis Vuitton’s owner—and Hermes’ share price by 22% and 37%, respectively.

To be sure, France’s stellar stock run slowed in November; and this, combined with a bounceback by the pound helped London recover its crown as Europe’s largest stock market. A new government has unwound much of the previous government’s much-criticized financial plans, and the pound is now trading around 12% higher as of November versus a month ago. Still, the UK remains the only G7 nation with a smaller economy than before the pandemic.