London loses its crown of biggest European stock market to Paris

London has lost its crown as Europe’s biggest stock market to Paris as economic growth concerns weigh on UK assets while China’s relaxation of Covid rules boosts French luxury shares.

The combined market capitalisation of primary listings in Paris overtook that of the UK capital in US dollar terms, according to an index compiled by Bloomberg.

Domestic-focused UK shares have slumped this year, while French luxury goods-makers like LVMH SE and Gucci owner Kering SA have recently been boosted by optimism over a potential easing of China’s Covid Zero policy.

Currency movements have also worked in Paris’s favor as the pound has tumbled 13 per cent against the dollar this year, while the euro has lost only nine per cent.

British midcaps have been crushed in 2022 on predictions that Britons would be squeezed harder by rising energy costs than elsewhere. British homeowners are also facing a surge in interest payments given the widespread issuance of flexible-rate mortgage loans in the country.

That’s left the mid-cap FTSE 250 index trading at a 30 per cent discount to the MSCI World benchmark, the most since the dotcom period in the early 2000s, Goldman Sachs Inc. wrote earlier this month.

“We think this discount is deserved given the weak outlook for UK growth, the level of the pound and the downside risks,” strategist Sharon Bell said.

The gap between the UK and French stock markets has been narrowing since Britons voted to leave the European Union back in 2016. Still, it’s not all negative news for UK equities, with pound weakness spurring outperformance for the country’s large-caps. The FTSE 100 index is down just 0.2 per cent this year versus a 17 per cent plunge for the FTSE 250.