Paris Is Eating London's Lunch

We are focusing this week without you on Paris, the city of Lights and now home to Europe's biggest stock market. That's according to Bloomberg data, which now shows that it is outgrown London and is now holding the crown of the biggest European stock exchange. And we're going to dive into that with Bloomberg experts both on this side and that side of the channel, and asking the question, is this just another sign of Britain's shrinking place in the

world in the wake of Brexit. In fact, on Bloomberg Television, former banking and policymaker Michael Saunders didn't hold back when assessing the impact of Britain's exit from the EU, the UK economy. There's a whole that's been permanently damaged by Brexit. This reduced the economy's potential output, significantly, eroded business investment. I would look, if we hadn't had breaks it, we probably wouldn't be talking about some austerity budget this week.

The need for tax rises spending cuts wouldn't be there if breaks it hadn't reduced the economy's potential output so much.

I'm David Merritt and this is in the City Bloomberg's podcast, connecting me to the stories and the voices at the heart of the City of London, and this week we are going to focus on one of London's most illustrious and long term rivals, Paris, the City of Light, and it's taking this opportunity to shine and we're going to hit the metaphoric rad I wanted to take the Eurostar, but I think the most official way to do this is down the line by speaking to some key Bloombo

voices in our beautiful Paris bureau in the heart of the city on the roof screeb. But first, the author of this week's Bombshells story on London losing its crown. We have Joe Eastern from our Equitives team right here in the London studio. Joe, thank you so much for joining us on in the city. I really just wanted to dive into this amazing story that you were first with this week. It's called quite a stir been picked

up all over the place. The headline is that London has lost its crown of the biggest European stock market to Paris. I know you've been tracking this data for some time. Can you explain what's been happening in recent weeks? So so we're tracking this data for several months really because we noticed that the market caps were finally getting close. The data goes back to round two thousand and three, so we know that it's it's been a big gap

for a couple of decades. At one point it was around at one point five trillion dollar gap and now it has turned negative and that's that's amazing number, just to put that into context. So one and a half trillion dollars the London market was worth more than Paris back in twenties six, so before the Brexit vote, and now they're both around the two point eight trillion marks. So there's been this enormous convergence and now those lines

of crossed. What has driven that mainly we had an underformance in UK domestic stock So these are companies that are heavily exposed to the UK economy. So it's not really the foots one hundred that's done reasonably well, and it's really global companies. It's the mining firms and the you know, the energy companies that have got a global footprint. Yeah, exactly, so around their sales come from outside of the UK.

So dollar strength is seen as very good to the indexes out formed, but the foot see two fifty of midcaps has plunged. Companies that exposed to the UK domestic economy have lost around half their value, a lot of them, so big retailers, Marks and Spencers, home builders are down fifty for the year because of the worries about the economy and that's been one of the drivers for this change. So that is a pretty bleak story then, isn't it.

I mean will say, if you split apart the London Stock Exchange, the companies that are really just looking at Britain or most of their profits from Britain, they've had a terrible year and that has dragged down the overall value of the London market. It's just smaller than France exactly.

It's been virtually all domestic stocks related. Obviously. I think the main thing among economists is about how the UK consumer will be hit harder by inflation than other countries, mainly because of the way energy bills are priced and the way mortgage rates are priced as well in terms of flexible mortgage rates, and so the UK domestic economy is expected to contract more than other nations and that is reflected in the domestic stock market. Can I ask

about the currency effect? Obviously, you know we all saw the huge plunge in the pound after the trust quoteng budget. We've seen a bit of a rally in sterling since then, um and a feeling that you know, the worst might be over. Perhaps the currency we've been talking perhaps about parity between the dollar and the power that seems to have retreated a little bit. But how much of this reverse sort of fortunes to London Paris is due to weakness installing? A large amount of it is because we

are talking about dollar values. The euro is down around eleven for the year. The pound I think was down around about fifteen cent last time I checked, So there

is definitely a currency impact. And really the Bank of England, although they have become relatively more hawkish than the last well you know, probably a couple of months ago, they turned more hawkish and they were definitely more you know, to use a market to more dubbish than other central banks, and that led to an underformance of the UK currency

and that's reflected in this data. And then obviously that feeds through to UK companies that buy products input costs in pounds there there they're hurt when the when the currency goes down. But obviously on Thursday, where many listeners will be tuning in, we're going to have the big autumn statement, the next kind of fiscal plans from Chancellor Jeremy Hunt. We know broadly what he's going to do

right now. He's going to have to cut public spending, he's going to raise taxes um So in that context, the next year looks even bleaker, doesn't it for the UK economy In there for all these companies that you're talking about, you know, the retailers, the home builders, there's no light at the end of the tunnel. It's there for these stocks I don't think there is like at

the end of the tunnel for these companies. Yeah, I think that probably what will happen is that inflation sort of tops out, maybe towards the middle of next year, and then interest rate expectations will probably be already coming down by then, and then you see a repricing of certain assets, and I think that could benefit the UK consumer. But I mean, in terms of what Hunt can do,

I think his hands are pretty much tied. So obviously a lot of pick up here in London on this story, but in France as well, what I mean, how much how much interest in this story is there in Paris? Are they crowing about this victory over longly? Yes? So kind of Yeah. I mean I had a few reporters from different French agencies contact me actually and yeah, trying to clarify some of the facts that they could then report the story themselves. So that was great to see

them picking it up. They were a lot happier than the British, and I have to say so I had a few um fund managers didn't weren't so keen on the story. But you know, it is based on data obviously, so it is factually undernoidable data. You know, there are caveats to in terms of how a lot more money actually changes hands on the UK stock market even today.

So the value traded per day on the London market is bigger than Paris still, but the value of companies listed um in those exchanges is now bigger in Paris for the first time. So have you been going on French TV to explain this or French is not as good as my Spanish? Yeah? Maybe a few words back from GCSE say days I can use so any optimism for for for this reversing any time soon. I mean, the big batdrop here isn't it is? It's the B word, it's Brexit. Longer term? Can this be reversed without a

fundamental shift in relationship between Britain and the opinionion? I think that not as we stand. I think that maybe some of those barriers between the UK and Europe naturally break down over the years and then we you know, we moved towards a sort of you know, brexit um only in name situation. But you know that's probably a bit beyond my my scope. But I do think that, you know, there are positive drivers in the UK, the UK business does generally do well. Financial services are still strong.

London is still a strong global financial center. But then you know, being a UK stocks reporter probably do have a small bit of bias, but I think there are there are reasons to be cheerful in London still, Jay, thank you so much. Clearly gives the very strong indications about the job achieved over the last five years in the attractiveness of a place like Paris and France of all,

as well as clear consequences of the Brexit. As you mentioned it, the weaker the weaker pounds has been playing his role, but you have also recognized that key strategy choice of international group favoring being public outside of UK as playing a role. That was Pascal Cany, president of Business France, the government agency charged with promoting France to

foreign investors. He was joining us on Bloomberg Radio this week to talk about the very story, and just like Michael Saunders, he says Brexit is a big reason for the shift out of London, but he's also saying it's a strategic choice made by businesses beyond just Brexit. Now, as promised for more on what is driving those strategic choices. I thought the best person to speak to would be

Albertina Tolsolei. She's a Bloomberg proporster in Paris. She's covered French companies and markets for ten years, so I thought i'd give her a call. Hello, Hello, Burge, I can hear you loud and clear. How are you, Albertina? Oh? Good? Yeah, I mean how things in Paris and everything is busy and fine and well from looks of it, things are going well for Paris. Well, that's my point, not just going well in Paris, right, things are going gang busses

in Paris. Isn't that What's what's what it looks like from over here? I think that, Yeah, I think it's what it looks like from over there. I wouldn't you know. I think that things are going well. I think that compared to the UK, things are going great. Yeah, I mean I'm not I'm not saying it's a you sound like a bit of relish in your voice. There sadness. I think you know it's Europe is weaker when the UK doesn't do well. And I'm not French. A lot

of my French husband's relishing the moment. All right, Okay, there we go. That's the difference, not me, but you know this story this week that Joe Eastern, right, it's caused a bit of a splash here and he's he says that French media have been on his case to talk about as well. You know, and you've seen the headline right, London has lost its crown, the biggest European stock pocket to Paris. I know you have French stocks

for years. Were you surprised by this? Not really, I would say, um, it's it's been a long time in the making. You know, it's not only the problems that the UK faced us with Brexit. Part of it is

that I think that there's a second dimension here. I covered very closely French in actions a few months back, and I have to say that the you know, UM voting, the staying in office, the second you know, um five years another five years of president Emmanuel Macon also has helped give confidence as opposed to the chaos that we've seen here multiple administrations exactly. So there's a certain form of stability. And don't forget that mccon is a former

investment banker. Investors like him. He's trying to you know, open up France, um, to make it a safer place to invest. It was not a safe place for investments because of the you know, the high taxes, even the taxes on your salaries. There are still taxes, but he's really trying to tackle all of those issues, not to mention structural reforms that could still come. So UM, it's

not only the UK that has been doing worse. I think that, you know, if we had seen Marine le Pen succeed in her presidency attempt to take the presidency, possibly the picture would have been a bit different. But yes, a lot of optimism in France today, in particular UM from outside UM investors and looking looking to France. I just want to talk a little bit, obviously about some more of the reasons why the French market is doing me abrun again. You've covered this market in debt and

the companies. It seems like it's again. The good news side of this story is that some of these French companies are doing creditally well. I'm not thinking about the high end luxury brands for instance. Can you talk a little bit about some of those success stories. You know, the CACA index is the benchmark index in France, and the powerhouses today are not the same powerhouses that we had ten years ago or even five years ago. Lvmash, the owner of VT, is the you know, one of

the biggest Europe's biggest companies by market value. If Mess has become a powerhouse as well. Um Care Ring lost a bit, but it's still high up there. Loreal, the maker of beauty products, is high up there. These companies keep on doing well. So it's absolutely fascinating to see how you know, inflation is hitting everyone. Those rich people who buy her mess bag, uh, you know, her miss bag broken back and cost more than ten thousand euros.

Those people aren't that dented in their purchasing power. And there's another element. Obviously, it's China. We all know that China. You know that the persistent no zero covid umh policy has hurt many businesses and with factories also closed. But you know, these companies have developed very powerful e commerce societies are selling still today even in China. And obviously the minute that China comes back, it will mean a lot of designer clothes, a lot of handbags, a lot

of jewelry. Let's not forget the jewelry. For Rishmont, the owner of Cartier not French, but in you know, these are even even Richmill has some French brands. I mean, yes, LVMH particularly as you mentioned there, it's now worth about three hundred and sixty or so billion dollars. It's your's biggest company by market value, right, yeah, and and only down a little bit this year in the context of

huge economic headwinds. You would have thought in the past luxury goods makers would have been really hammered in this environment, right, But as you say, it's like the new global elite and not being touched by this slowdown, and in fact, it sounds like there's just more growth to come for these companies. Yes, they were hammered a bit in particular mess at the start of the year, but not so much for their sales, which really didn't change much. And

the outlook remains great. But because of the higher interest rates, and obviously you know, higher interest rates tend to hurt in terms of investments, both the tech companies and the luxury companies. But as you've seen, the tech companies are having a rough patch, even the big American companies and and not luxuries. So parents is really sitting on in the sweet spot here, isn't it, you know? So as

the home of luxury brands and these huge companies. It's managing to to sort of ride the wave on this. What does this mean for the city. I think this is just the start because when Brexit happened, you know, when the impact of Brexit started being felt and it actually came alive. You know, Um, we were in the middle of a pandemic, so a lot of those job moves didn't immediately happen just because it was the middle of a pandemic, so there was a lot of work

from home. But the change in the past, I would say ever since September, you know, we we are seeing a massive return return to work and people have actually started moving. Even City Group I think announced that it's opening uh you know, new jobs in Paris, new offices, so a lot of office space that it's being taken up. Of course, this also means um support for real estate, quest for school places in international schools. Uh it again, it spells very good news for for you know, restaurants

or for luxury again hotels. I mean Paris is really back and and definitely you know this can be felt. So is it hard to get a table at a restaurant? Is very hard? It's getting harder and harder to get tables at a restaurant. And this is very strange because you know, there are there are a lot of worries for the higher inflation, but for example, restaurants haven't been impacted at all. But once again, um, I think that this is just the start of a movement. You say,

you know many jobs trickled from London to Paris. I'm not sure that a lot of people just moved out of of of London. But all those new hires, all the news, new new places you want to fill in jobs, all the new jobs are coming, you know, to to continental Europe, and Paris is really a winner. Again, not everything is perfect, but I think that there's a lot of positiveness. Um that maybe right now people outside of France see more and the French themselves actually as usual,

but that is pretty normal. I think. I think that you know, we're gonna be we're gonna be tracking this theme. Our's in a very closely and I think for the next installment, I think we're going to have to come on location. So if you can secure one of those restaurant bookings, we're going to do some on the ground reporting. Albertina Torso from Paris. Thank you so much for joining us,

Thanks for listening to this week's in the City. We will be back next week, but in the meantime, if you like our show, please head on over to Apple Podcasts or wherever you listen to podcasts and rate, review and subscribe. This episode was hosted by me David Merritt, and it was produced by Summer Sadi, Editing and sound design by Blake Maple's. And don't forget to check out bloomberg dot com slash uk Wealth for more insights on how to manage your money on news site has launched this week.