Recent news coverage has reported that Paris has overtaken London as Europe’s largest stock exchange. But is this an accurate picture? We look at the measures that underpin this story.
The measures used in recent articles claiming Paris has overtaken London refer to the market capitalisation of the equivalent All Share indexes. Under this metric, Paris (CAC: £2.46tn) has overtaken London (FTSE: £2.31tn). However, the UK All Share index does not include all listed companies. It only includes those listed on the UK’s main market and it excludes some foreign activity. The main market equates to only around 600 of roughly 2,000 listed UK companies. This excludes for example the £61bn worth of companies listed on AIM, home to many large household names, such as Boohoo Group Plc (c. £4bn), Fevertree Drinks Plc (c. £2bn) and YouGov Plc (c. £722m).
A key reason for the rise of Paris is largely down to the performance of a single large company, Louis Vuitton, which represents more than a tenth (12%) of the French market. Valued at $364bn, this is nearly twice the size of the UK’s largest listed company, Shell ($197bn).
Louis Vuitton, and the luxury goods sector, have benefited particularly from the strong dollar. Over a quarter of the French market is concentrated in consumer goods. In comparison, the UK’s market remains more diversified and its largest listed company accounts for a considerably smaller market share, around 7%.
Under other market cap measures that take account of the whole market, the UK is still larger than France. Data from Refintiv puts the UK’s market cap of all listed companies 15% higher than France. But estimates from New Financial for all stocks on respective markets have indicated London remaining as much as 40% higher than Paris and “safely the largest stock market in Europe” ($6.2tn vs $3.7tn). The measure by New Financial takes account of foreign activity such as non-primary listings in the two countries – which supports the claim that the UK is a more global financial centre.
It is worth noting that market value is just one metric. Others such as liquidity and free float are also valuable indicators of an investable market. The UK remains far more liquid, particularly for foreign trading (more than Euronext). And, again, in the case of Louis Vuitton the company has a high valuation yet so little is available to the market. Regulatory announcements suggest one family, through various legal structures, owns nearly half the stake in the company (48%). The UK remains a more accessible financial market, particularly for institutional investors to trade.
Furthermore, there are particular areas where London’s offer is clearly stronger, such as international issuance. London remains an international IPO centre, attracting more international issuance than the whole of Euronext. By contrast, the rise in IPO numbers in Euronext has been mostly from domestic issuers, albeit its foreign listings have seen recent increases. London also remains an international trading centre, again attracting more foreign trading activity than the whole of Euronext. Of course, there are still competitiveness concerns surrounding the UK’s equity capital markets. The UK has seen a weaker pipeline of new issuance (particularly domestic IPOs) and reduced performance of UK stock (particularly mid-caps eg 18% below the FTSE 100). The relatively low sterling exchange rate, by historical standards, has weakened valuation metrics.
A significant competitive strength for the UK is its appeal for foreign issuers and listings and its global reach. Initiatives are in place, such as the Listing Rule changes being implemented from Lord Hill's Listings Review; the London Stock Exchange Group-led Capital Markets Industry Taskforce; and City of London Corporation-led campaigns, including one to boost growth capital into high growth financial tech firms in the UK. These will all support the UK’s competitive offer for capital markets into the future.