Political uncertainty in France negatively impacted the valuation of the Paris stock market. The uncertainty surrounding the French election caused a slump in the market, as investors dislike uncertainty. The snap election called by President Emmanuel Macron raised questions about the implications of the election and the potential policies of the new government. This uncertainty led to a decline in the value of companies listed on the Paris stock exchange, ultimately causing the total value to fall to $3.13tn.
Analysts attributed the LSE's underperformance prior to November 2022 to several factors. These included the fallout from former Prime Minister Liz Truss' mini-Budget, a weak pound, recession fears, and Brexit. Additionally, the LSE has faced challenges in recent years attracting investors and companies that have been tempted by American exchanges, resulting in a shift in value towards the US stock markets.
Russ Mould of AJ Bell believes that US companies might be overvalued and UK companies undervalued due to a few factors. One of the primary reasons is the difference in the performance of the stock markets in both countries. The S&P All-Share index, which tracks the value of every listed company in the US, has soared over 85% over the last five years, while the equivalent FTSE All-Share index has increased by less than a tenth over the same time period. This disparity has led to investors potentially overvaluing US companies and undervaluing UK ones.
Another factor contributing to the undervaluation of UK companies is the uncertainty surrounding Brexit and its impact on the British economy. This has caused many investors to overlook the potential opportunities in the UK market.
Additionally, Mould notes that the main US exchanges are heavily dependent on a handful of highly-valued tech stocks, including Google, Apple, and Amazon. He does not believe this will be sustainable in the long-term, as it creates a potential risk if the valuations of these tech giants were to decline.
On the other hand, UK stocks are trading at about half the forward earnings ratios of US companies, making them more attractive in terms of valuation3. Mould suggests that potential takeover targets could be found among the undervalued UK stocks, which could lead to increased investor interest in the UK market.