London is about to surpass the European stock market's previous record

 London is about to surpass the European stock market's previous record

The stock market in Britain is beginning to recover.

London appears ready to reclaim the title of Europe's largest equity market from Paris, less than a year after Paris lost it as the surge in French luxury companies falters.

According to a Bloomberg index, the cumulative dollar-based market capitalisation of all principal British listings is currently $2.90 trillion compared to $2.93 trillion for France. The difference between the two has steadily closed, mostly due to a decline in France's worth from its $3.5 trillion high set last year as the crucial Chinese market's economic woes worsen.

For the first time in a long time, investors are showing indications of optimism in London, with strategists from HSBC Holdings Plc, Barclays Plc, and JPMorgan Chase & Co. all projecting gains for a market that has been tainted for years by the Brexit uncertainty. When a Bank of America Corp investor study ranked the UK as the most despised market globally last year, the tone had significantly changed.

Emmanuel Cau, a strategist for Barclays, believes that the UK market is currently a "good place to hide" and anticipates that increased energy exposure and declining inflation may lead to "meaningful" investment inflows. For the first time since May 2021, Max Kettner, his HSBC counterpart, changed his stance on UK stocks this past week.

What then is going well for the UK? First, the 30% increase in oil prices over the past three months has benefited its stocks. Second, inflation is finally starting to decline, which would allow the Bank of England to terminate its 22-month cycle of tightening monetary policy. The pound's value against the dollar might then decline, which is important for an index full of firms belonging to exporters.

The most recent week's BofA data revealed that withdrawals from UK stock funds are still occurring, erasing a brief period of gains in mid-September. Investors might add to their UK positions, as global funds continue to be net 22% underweight the market, which is the most pessimistic sentiment in almost a year, according to a BofA survey.

Energy companies, which have been performing relatively well, are significantly weighted in the UK market, which is an advantage, according to strategist Susana Cruz of Liberum Capital Ltd. The FTSE 100 gives the energy sector a 14% weighting, and according to statistics from Bloomberg Intelligence, experts anticipate that the sector will contribute 20% of the index's earnings this year.

Shell Plc, one of the top oil companies on the FTSE, is trading close to five-year highs. The climax in 2018 occurred when oil was trading at $75 per barrel. Now, the FTSE 100 might move significantly higher if predictions of $100 oil are accurate.

image contrasts with Paris, which is under stress due of the slump in China's economy. Nearly a fifth of the CAC 40 index is made up by LVMH, L'Oreal SA, Hermes International, and Kering SA, which propelled the surge earlier this year. Analysts warn that the market for upscale handbags and jewelry is likely to weaken in China as well as at home in Europe, which is why all have fallen from the highs reached earlier this year.

The pound has decreased by around 4% against the dollar this month, which is important for FTSE 100 listed companies because they get about 75% of their business from abroad. According to Goldman Sachs Group Inc. strategists, exporters will continue to benefit from the weaker pound.

According to Dan Kemp, chief investment officer at Morningstar, which has $295 billion in assets under management, "there has been a real UK discount for quite some time, and we see that discount sort of baked into prices." "The UK is definitely a more attractive market than some others from that fair-value perspective."

With a stagnant economy and businesses escaping to New York for share listings, London's difficulties are far from done. According to Barclays' research of EPFR data, the market has been seeing constant outflows, which have reached a total of $23 billion so far this year.

London-listed shares are highly undervalued compared to peers due to years of depreciation. A forward price-to-earnings ratio indicates that the FTSE 100 trades at a 35% discount to the MSCI World Index at the moment.