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Euronext pushing LSE for European primacy


On Saturday the nations of France and England go head-to-head in a grudge match at the football World Cup in Qatar for a place in the last four of the tournament. Saturday’s match resumes a history that has – mostly – been one of conflict, occasionally entente cordiale and alliance – but mainly 1,000 years of fighting and antagonism.

Even in post-WWII Europe, French war hero, and president, Charles de Gaulle – who had operated his Free French government from London during the war – was uncompromising in his resistance to Britain joining the nascent European Union; a community the British electorate chose to leave in 2020.

Although relationships have deteriorated since Brexit and continue to be strained over the migration crisis in the English Channel (la Manche), France and Britain are again in a state of entente cordiale, forced to collaborate on transnational issues such as the War in Ukraine, climate change, and the state of the global economy; but wary of one another and far from fast friends. Conflict has resumed, and not only on the football pitch.

Euronext supremacy

A few weeks ago, Euronext Paris overtook the London Stock Exchange as Europe’s most valuable stock market by market capitalisation in dollar terms.

Although Bloomberg has now reported that a rally in the pound has allowed the UK stock market to edge back above its French counterpart, the race between the two is ongoing.

For many, the move has been driven mainly by two things: the strength of French fashion companies and the relatively poor performance of the British stock market.

LVMH [EPA:MA], L’Oreal [EPA:OR] and Hermes [EPA:RMS] are the three largest companies within the CAC index by market cap and fall into the Luxury Goods category, a genre of the market that has witnessed a tailwind of sentiment in recent months,” said James Sullivan, head of partnerships at Tyndall Investment Management.

Each of the three stocks have performed remarkably well since the summer, returning 17.3%, 8% and 34.9% respectively over six months, he added.

“Other than a broad aversion to the UK market by most international investors that has suppressed the UK market, the performance of these three dominant stocks has almost single-handedly driven the market cap of the index higher, superseding that of the UK market,” Sullivan noted.

Sterling weakness

Craig Erlam, analyst at OANDA, said one of the most notable reasons for the gap between the two closing and even inverting last month was because of the weakness of the sterling.

Year-to-date the pound to US dollar exchange rate is down 9.11%. It fell to a record low against the dollar of below USD1.04 in September, prior to the resignation of former prime minister Liz Truss. And although the UK currency has been recovering slightly over the last month, there is still uncertainty, with analysts expecting further vulnerability in the next year.

“That was a major factor in that underperformance. That aside, I do think the more domestic factors in relation to how the economy has performed over that time, with the UK continuing to struggle, and already in recession [has had an impact].”

Brexit, combined with the pandemic and the effects of the war in Ukraine, have also had an impact, particularly on trade.

“That’s going to lead to more underperformance of UK domestic stocks and the currency,” Erlam added.

In addition, the UK market is more exposed to some of the more volatile sectors like mining and energy stocks.

The political and economic uncertainty in the UK has resulted in investor jitters as well, with UK equity funds seeing outflows of GBP1.3bn in September.

With all this in mind, for those looking to gain broad access to the French stock market there are several options, one of which is through exchange traded funds. ETFs with some of the largest exposure to France are:

  • Franklin FTSE France ETF
  • iShares MSCI France ETF
  • Xtrackers CAC 40 UCITS ETF
  • Amundi CAC 40 ESG UCITS ETF

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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