President Emmanuel Macron’s surprise announcement of early elections sparked a wave of heavy selling, wiping about $258 billion off the market value of French companies last week.
Shares of banks such as Société Générale, BNP Paribas and Credit Agricole – all major holders of government debt – fell by more than 10 percent each.
According to data compiled by Bloomberg, and seen by Sky News Arabia, the total value of stocks in France is now about $3.13 trillion, which is only slightly lower than the United Kingdom, which has a stock value of $3.18 trillion.
France’s CAC 40 index erased all its gains for 2024, in a sharp turnaround after hitting all-time highs a month ago.
“We are in a period where there are no guarantees for three to four weeks, and the market could unfortunately become more turbulent,” said Alberto Toshio, portfolio manager at Kairos Partners.
At the same time, a combination of factors including improved global growth and increased consolidation has made British stocks popular among investors again. Although the UK is set to hold its own general election, the outcome is seen as more stable with the opposition Labor Party leading by a large margin in the opinion polls.
“We prefer UK stocks for value reasons as well as portfolio diversification given their attractiveness,” said Ulrich Urban, head of multi-asset strategy and research at Berenberg. “In addition, political uncertainty appears to be higher elsewhere, at least for now.”
Britain’s FTSE 100 index hit all-time highs this year, boosted by export-driven stocks such as Shell and Unilever. The index has far outperformed the Euro Stoxx 50 over the past three months, with Rolls-Royce Holdings, a maker of jet engines, among the biggest gainers.
Globally, the UK is now the sixth largest stock market.
In France, market strategists are still not convinced to return to stocks yet due to uncertainty related to public finances and politics. In addition to banks, shares of motorway operators Vinci and Eviage fell on fears of renationalisation of motorways if Macron’s party loses power.
The news comes at a time when index-heavy French luxury stocks were already under pressure from an uneven recovery in China.
“Given the current unusual political dilemma and high headline news risks between now and the election, we see no reason to rush into bearish stocks,” Barclays strategist Emmanuel Coe said in a June 12 strategy note.
The first and second rounds of voting will take place on June 30 and July 7.
However, the French CAC 40 index rose 0.5 percent in early trading on Monday, outperforming a 0.3 percent rise in the Stoxx Europe 600 index.
Investors also see some reasons to be cautious about the UK as well. The July 4 election is likely to mark the biggest political shake-up since Brexit, and the new government will have limited fiscal scope and face scrutiny from bond watchdogs.
Britain’s stock market has underperformed its American counterparts for years, and traders have been pressuring companies to list in New York.
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