(Bloomberg) — Political turmoil in France has caused the country to lose its place as Europe’s biggest stock market, less than two years after it stole that crown from Britain.
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President Emmanuel Macron’s shock announcement of early elections led to a defeat that wiped out about $258 billion from the market capitalization of French companies last week. Shares of banks Societe Generale SA, BNP Paribas SA and Credit Agricole SA – all major holders of government debt – each lost more than 10%.
The country’s shares are now collectively worth about $3.13 trillion, narrowly losing out to the United Kingdom’s $3.18 trillion, according to data compiled by Bloomberg. The CAC 40 Index has erased all of its gains for 2024 – a sharp reversal from record highs a month ago.
“We are in a period where there are no certainties for three to four weeks and the market could unfortunately become more unstable,” said Alberto Tocchio, portfolio manager at Kairos Partners.
At the same time, a confluence of factors, including improving global growth and picking up merger activity, has made British shares popular with investors again. Although the country is preparing for its own general election, the outcome is seen as more stable, with the opposition Labor party leading in the polls by a wide margin.
“We like UK equities for valuation reasons, but also as portfolio diversifiers given their attractive sector profile,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “Moreover, political uncertainty appears to be greater elsewhere, at least for now.”
The FTSE 100 Index has hit a record high this year, fueled by export-dependent stocks such as Shell Plc and Unilever Plc. The index has comfortably outperformed the Euro Stoxx 50 index over the past three months, with jet engine maker Rolls-Royce Holdings Plc among the biggest gainers.
On a global scale, Britain is now the sixth largest stock market.
In France, market strategists are not yet convinced that they will return to equities en masse due to the uncertainty surrounding public finances and policy. In addition to the banks, toll road operators Vinci SA and Eiffage SA have dropped amid concerns that highways could be renationalized if Macron’s party loses power.
The news comes at a time when France’s heavyweight luxury stocks were already under pressure from an uneven recovery in China.
“Given the unusual political conundrum at the moment and the high risk of headlines between now and the election, we see no reason to rush to buy the dip,” Barclays Plc strategist Emmanuel Cau said in a June 12 strategy note. The two-round vote will take place on June 30 and July 7.
To be fair, investors also see some reasons to remain cautious on Britain. The July 4 election will mark the biggest political shake-up since Brexit, and the new government will have limited fiscal space and face scrutiny from bond vigilantes.
The country’s stock market is also reeling from companies choosing to go public in Europe or the US, partly under pressure from activist investors seeking better valuations.
–With help from Michael Msika and Farah Elbahrawy.
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