The London Stock Exchange (LSE) retook its crown from Paris as Europe’s most valuable for the first time in nearly two years.

Data shows that the combined market capitalisation of all LSE-listed companies hit US$3.18 trillion at the close on Monday (June 17), outpacing Paris on US$3.13 trillion.

Paris’ benchmark CAC 40 index slumped more than 6% after President Emmanuel Macron called a snap election last week.

While London’s top-tier FTSE 100 index is reaching record highs, driven by favorable factors such as lower inflation, increased takeover activity, potential flotations, and overall positive performance.

Why investors dislike uncertainty

Financial markets tend to respond negatively when investors are uncertain about the source of funds for government pledges. This uncertainty impacts the value of bonds, which represent money lent to the government at market-agreed rates.

If investors perceive that a government’s policies or those of a potential government are not financially viable, it often leads to an increase in bond yields, which are the interest rates on bonds. Consequently, this affects the value of publicly listed companies as higher bond yields can make lending to the government more profitable than investing in company shares.

What other challenges LSE are facing

One of the biggest challenges facing the LSE is pitching to investors and companies tempted by the US market.

A number of big firms, including Cambridge-based biotech firm Abcam, plumbing supplier Ferguson and packaging firm Smurfit Kappa Group, have chosen to move to the UK. Shell PLC, the oil and gas giant, has recently threatened to do the same.

Meanwhile, the S&P All-Share index, which measures the value of all listed companies in the US, has experienced a remarkable surge of over 85% in the past five years. In contrast, the FTSE All-Share index, which represents a comparable measure for the UK, has grown by less than ten percent during the same period.

UK Stock Exchanger VS. US Stock Exchanger

Valuation:

LSE-listed companies tend to have lower valuations. And the market traditionally favors long-term selling stocks, which can result in lower growth and returns.

In contrast, the US market provides higher valuations for companies and opportunities to profit via short-selling.

Regulatory standards:

During an LSE listing, regulatory measures are stringent. Companies are required to raise capital and obtain approval from the Financial Conduct Authority (FCA), the regulatory body overseeing financial markets in the UK.

In the US, both the Nasdaq and the New York Stock Exchange (NYSE) have specific requirements for companies seeking to list. These requirements include disclosing the initial stock price, the number of shares issued, the number of shareholders and total market value. Once companies have successfully completed their initial public offering (IPO) and their shares are being traded, they are subject to less stringent ongoing regulatory standards.