London has not lost its crown as Europe’s biggest equities market to Paris

You will have seen the recent headlines: “London loses its crown to Paris as Europe’s biggest stock market” and “London has lost another status symbol – it’s no longer home to Europe’s largest equities market.” 

These were just some of the reports shared around the mainstream press and TV not only in the UK but around the world, from the China Daily to Singapore’s Straits Times to the Indian Express. 

Twitter also went into overdrive. Historian Dan Snow, who really should know better, tweeted that while London’s stock exchange survived Luftwaffe raids – and then a rocket in 1945  – the UK did the greater damage to itself through Brexit. 

This isn’t a great look for the UK right now, coming after the last few months of pantomime style behaviour from our politicians and a press, fed by hard-core Remainers, delighting in Britain bashing and wanting it to be true that the City as a financial centre is in terminal decline. 

Yet these headlines were simply wrong, or at best deeply disingenuous. London has not lost its crown as Europe’s biggest stock market and Paris has yet to take that crown, however much President Macron might love to claim that Paris is the real financial centre of Europe.  

So why the headlines ? They were triggered by a Bloomberg article published last week claiming the French stock market is now worth $2.823 trillion, just ahead of British stocks that are worth $2.821 trillion.

More pertinently, the Bloomberg article stated that in 2016, pre-Brexit-  UK stocks were collectively worth $1.5trn more than those in France. 

The London Stock Exchange has not commented publicly on the Bloomberg report although senior sources claim the figures used by the US media giant are not only wrong but a “distortion” of the real picture. “It’s like comparing apples et les poires,” said one.

According to Refinitiv – part of the the market data and analytics arm of the LSEG – the total market capitalisation of all companies listed on the London exchange are valued at $6.2trn, nearly double the figure for Paris bourse at $3.7trn making London easily the biggest.

So why the discrepancy in the latest numbers ? Well, as Will Wright of the New Financial capital markets think tank says, “c’est compliqué.”

Here’s why: London is an international market with hundreds of companies which have dual – if not multiple – listings on other exchanges. Many of these international companies have DRs – depositary receipts -certificates issued by a bank representing shares in a foreign company traded on another exchange –  as well as many companies which have partial free floats. 

Just over a third of all companies listed in London are from overseas while roughly around 15% of companies are dual listed. For example, HSBC lists in London but also on the Hong Kong Exchange.

Yet even if measured by domestic issuers only, the companies listed on London are valued at $2.82trn which is still more than Paris which was $2.69trn. 

Based on those with primary listings only – excluding DRs – London is valued at $2.94trn in contrast to Paris at $2.88trn. On the basis of indices, such as the FTSE All Share, London’s companies are  valued at  $2.95trn while the CAC All-Tradable is $2.69trn. According to New Financial, even if you focus only on local companies and foreign companies with a primary listing, you get roughly to these numbers:  London’s value is between  $2.95tn to $3.04tn while Paris is $2.70tn to $3.01tn.

In the case of a company which is dual listed, primary issuances are listed where the primary exchange is for that issuer. The definition of this isn’t a standard one used by exchanges, as some companies assign their primary exchange as their domestic exchange whereas others assign the exchange where there is the most liquidity. 

Bloomberg is thought to have included only actively traded, “primary securities” on the country’s exchanges, using its own indices market capital indexes – WCAUUK for UK and WCAUFRAN for France – for its latest report, so the data would not include the wider range of listings on the London Stock Exchange. Despite several requests, Bloomberg has not commented on how it put these numbers together. 

What is correct is that the UK’s royal headgear has slipped a little – not just over the last six years since Brexit – but over the last two decades. There are many reasons for that which we shall come to in more detail but they are not directly Brexit related. It’s also true to say Paris can boast some of the world’s most successful luxury goods companies  – those such as LVMH which is worth a whopping E355 billion and Hermes now valued at E155 billion – which have swollen the value of its bourse and have done particularly well in China post-Covid. Sterling’s fall against the dollar has also been sharper than that of the euro, thus boosting the French figures.

Yet however you look at the numbers, London is still the bigger equities market than Paris on just about every metric. If you want to be pernickety, it’s worth looking at other measures – such as IPOs and secondary capital raising. Between 2015 and 2022 to date, the number of IPOs and follow on activity in London was 4,626 and 718 for Paris. In 2021, the number of IPOs in London was 125 and 39 for Paris. If you go wider into other markets such as currency trading and funds under management then London is still second only to New York as the world’s leading financial centre according to the Global Financial Centres Index ranking. Although London’s rating score has been slipping of late, Paris is in eleventh place.  

But no one is being complacent, least of all the LSE which has been accused by many of living in “Jurassic Park.” Its own numbers show there is a narrowing of the gap between the two exchanges: in October 2016,  the total list of equities for Paris was $1.8trn (based on Bloomberg and Refinitiv data) while the total market cap in London was $5.6trn (based on LSEG data).

Over the last few years there has been a big decline in the number of companies listed on the various LSE markets, either because companies have chosen to leave the public markets and go private or have been bought out by foreign predators, mainly US companies helped by a strong dollar. In 2021 alone, around 130 UK tech companies were bought out by American bidders. 

In 2015 there were 2,429 companies listed and today there are 1,970. (This compares to 800 on the Paris bourse, part of the Euronext group.)

What’s more, many of London’s listed companies trade at a discount to their peers in the US and Europe, one that has worsened since Brexit because of the uncertainty created by the political upheaval which ensued. To that extent, it’s fair to say Brexit has been a factor because of the risk to the UK’s reputation that grew out of the political horse trading in the post-Brexit years. Simon French, economist at Panmure Gordon, has highlighted what he calls this “decoupling” which shows how the UK’s corporates have suffered because of this risk factor, one that also perversely makes them more attractive to US predators because they are relatively cheap to acquire. 

There are other far more crucial and troubling factors which have made listing – and raising capital – become more cumbersome in the UK, and that explains why some companies have decided to stay out of the public spotlight.  Corporate governance issues are a big burden on management as so many investors now use proxy companies and intermediaries to make their case. 

In an attempt to improve all aspects of access to the capital markets as well as how they function, there have been a number of hard-hitting reviews which have been adopted and are working their way through the system. 

As well as Lord Hill’s report into listings reforms – allowing smaller number of shares and a new dual-structure of shares,  there is another important report, The State of Stewardship,  commissioned by Tulchan Group analysing the current state of play. 

Its focus is on looking at why relations between the boards of publicly listed companies and their shareholders are deteriorating, relations which are being blamed on the interventions of proxies acting on shareholders behalf. 

With the internationalisation and fragmentation of the shareholder base, even the biggest of the FTSE 100 corporates are losing touch with their investors. This growing trend towards heavier governance has led to an atmosphere of box-ticking, another reason to put off public listings.  

As one leading corporate chief said, it’s gone from an era of comply and explain to just comply. He says: “Governance has gone so far that it’s no longer a discussion between boards and their investors about strategy: it’s now nit-picking.” 

London has also been criticised for being slow to attract tech companies which make up only a small part of the main FTSE indices compared to 20% across global markets. It is why the government should be doing everything it can behind the scenes to ensure that ARM – one of the UK’s big tech success stories – goes ahead with a dual listing here and in the US. 

Liquidity is also a problem: in the US it’s more than doubled since the financial crisis but on the FTSE All-Share index, it has more than halved. This puts off some fund managers from investing in the UK. 

On the other side of the coin, fund managers are also coming in for some stick: they are accused of being lazy in their stock-picking and risk-taking, preferring to collect dividends from the more established companies – like oil and banks – rather than rewarding innovation.

Britain is home to some of the world’s most innovative, cutting-edge companies but many of them find it almost impossible to raise capital here, either at seed corn stage or at later stages. A recent Tech Nation report showed that 64% of all investment in UK growth companies comes from overseas investors. And when these companies do reach a certain size, they are snapped up by overseas predators. 

How do we keep them and how do we shift this mood? It’s one of many challenges being looked at by the LSE’s chief executive, Julia Hoggett, who heads the UK Capital Markets Industry Taskforce aimed at kick-starting and improving the UK capital markets. Her ambition? “To ensure the UK capital markets continue to provide efficient access to capital, which enables businesses to start, grow, scale and stay here.” 

Ironically, leaving the EU, and the strictures of the European Securities and Markets Authority -ESMA – should allow the UK to be more nimble, and to push through root and branch reforms which the LSE claims will make the public markets more dynamic. At least, that is the belief. But that’s not something that would make the headlines. 

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