Dan Kitwood/Getty Images
The lobby of the London Stock Exchange, photographed in September 2023.
London
CNN
—
The London stock market slightly outperformed its Paris counterpart amid growing concerns over the outcome of France’s upcoming parliamentary elections.
The market capitalization of all stocks listed in France is now about $3.13 trillion, while the market capitalization of all stocks listed in Britain is $3.18 trillion, according to data compiled by Bloomberg on Monday.
On Tuesday, Paris’ CAC All Share index slightly outperformed London’s FTSE index, although the latter only accounts for 98% of the market capitalization of UK-listed stocks.
Axel Rudolph, senior market analyst at trading platform IG Group, said London’s return to being Europe’s largest stock market was “mainly” due to French President Emmanuel Macron’s announcement that early general elections would be held on June 9, following his crushing defeat to France’s far-right forces in the European Union elections.
“Financial markets don’t like uncertainty and the shift to the right in France’s European elections has people worried (about what will happen next),” he told CNN.
Since June 9, the CAC 40 index of France’s biggest stocks has lost more than 5% of its market capitalization, or the equivalent of $160 billion, as investors consider the possibility that the far-right National Rally party will play a bigger role in parliament in Europe’s second-largest economy.
The first round of the French elections is scheduled for June 30th, the second round for July 7th.
A poll published Friday by research firm Opinionway found that 32 percent of respondents plan to vote for the Rally National in the first round, 25 percent for the left-leaning Coalition of Parties and 19 percent for Macron’s centrist party.
French bank stocks have been particularly weak since Macron called the elections, with Société Générale’s shares down nearly 14%, while BNP Paribas and Credit Agricole have fallen 10.6% and 11.2%, respectively.
Hubert de Barochet, senior market economist at consultancy Capital Economics, said investors might be worried that a parliament run by the National Coalition would penalize banks.
“Typically, fairly populist governments attack banks and their profits… There may be concerns about additional taxation on banks,” he told CNN.
Another reason for the sharp drop in French bank shares is the fact that “banks hold a very large portion of the country’s public debt,” he added.
Prices of these bonds have fallen since June 9, raising the yields and interest rates demanded by investors who see the risks of holding the bonds as greater.
A far-right-dominated parliament could make it harder to reduce France’s huge government debt, which was equivalent to 110.6 percent of gross domestic product at the end of last year, and could even increase it. A sharply divided parliament would also make it harder to reduce the budget deficit — the difference between government spending and tax revenues — which reached 5.5 percent of GDP last year.
IG Group’s Rudolph said in contrast to the political and financial turmoil in France, financial markets in Britain are “relatively stable” as the country prepares for a general election on July 4 that the opposition Labour party is expected to win by a large margin.
Moreover, with Brexit uncertainty easing and Britain emerging from a brief recession, investors are snapping up shares of British companies that are undervalued relative to U.S. stocks, he added.
Similarly, Richard Hunter, head of markets at investment platform Interactive Investor, wrote in a note on Tuesday: “There are growing signs that the UK is gaining some traction among international investors, given its mix of stable, cash-generating companies that are cheap by historical standards (relative to French stocks).”
Across the English Channel, the National Coalition has promised to increase public spending and drastically cut VAT on electricity and fuel if it comes to power.
Ratings agencies are already keeping a close eye on France, one of the three most indebted countries in the EU: Last month, S&P downgraded France’s long-term credit rating and said it expects the budget deficit to shrink to 3.5% of GDP in 2027, well above the 2.9% target set by the current government.
“Our view on France remains that the debt and deficit situation is cause for concern. We do not see the French deficit falling below 3 percent over the next five years,” Mohit Kumar, chief European economist at investment bank Jefferies, wrote in a note on Tuesday.
