The Year London Lost Its Markets Crown to Europe

The year London lost its market crown to Europe

London is no longer the biggest market in Europe. (file)

It’s been a dramatic year for UK markets.

The start of a recession, inflation at a 41-year high, two prime ministers resigning and the highest number of strikes since Margaret Thatcher in the 1980s have led to a sell-off in domestic stocks and debt. government and corporations.

The downturn in many assets comes as Britain faces a potentially more severe cost of living crisis than other developed economies. That’s partly because of rising household energy costs and also because shorter mortgage payments are more sensitive to central bank rate hikes. Meanwhile, Brexit is causing supply chain disruptions for companies.

In total, about £550bn ($672bn) of market value has been stripped from indices that track local equities and bonds.

“It’s been a really tough year,” Anna Macdonald, Edinburgh-based fund manager at Amati Global Investors, said by phone. “The assessment paints a very grim picture.”

Here’s a breakdown of what happened in UK markets this year:

London De-Throned

This was the year that the UK lost its crown as Europe’s largest stock market. The combined market capitalization of primary listings in Paris — excluding ETFs and ADRs — was $2.97 trillion as of Dec. 15, compared with $2.95 trillion in London, according to data compiled by Bloomberg.

And it wasn’t just France that destroyed London: India and Saudi Arabia also turned on the UK. Saudi Arabia’s stock markets have benefited this year as Brent crude oil prices hit a peak of $140. Saudi Arabia’s oil company, also known as Saudi Aramco, accounts for more than half of the traded market capitalization and is the third largest company in the world.

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Indian firms are benefiting from access to cheap Russian crude, according to Nick Payne, director of investment in emerging markets equities at Jupiter Asset Management.

Pound’s Turbulent Year

UK markets experienced waves of high volatility in late September as then-Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng announced a raft of unfunded tax cuts in their mini-budget.

The announcement rattled markets as investors fretted over increased government borrowing needed to finance the policies. The pound fell to an all-time low of $1.0350 against the dollar and, despite a rebound later when Rishi Sunak replaced Truss as prime minister, is still poised for its biggest annual fall since 2016 is

Chris Iggo, chief investment officer of AXA’s Core Investment Managers unit, said: “The image of the UK has been damaged by Brexit, due to the political turmoil and the event we saw in September.”

Gilt Product Spike

British 10-year yields have risen more than two percentage points this year, the most since 1994. That’s as the Bank of England raised interest rates at the fastest pace in more than three decades to keep double-digit inflation at bay.

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And even though the yield has decreased from the small budget, “the perception of financial reliability has not fully unfolded,” strategists at BlackRock Inc. they said in their 2023 vision.

Corporate Debt Drought

Many sterling bond sales have been halted amid various bouts of volatility this year, with no deals halted in the two weeks since the mini-budget and responsible-investment (LDI) crisis that would have required a BOE intervention.

At around £115bn including gilts, issuance fell to the lowest level since 2018, when investors were nervous about the UK’s struggle to secure a Brexit deal.

FTSE 100 Momentum

Meanwhile, the international FTSE 100 stood as a bright spot, however, after underperforming since the UK voted to leave the European Union in 2016, partly due to a lack of “growth stocks ” in fields like technology.

A weaker pound benefited exporters, while higher commodity prices boosted gains from the likes of Glencore Plc and Shell Plc. Non-cyclical sectors such as essentials and healthcare further strengthened the FTSE, as investors sought safe havens during the economic downturn.

The FTSE 100 has been the best-performing emerging market in local currency terms this year, while falling 11% in US dollar terms, on track for its biggest performance against eurozone peers since 2011. goes to

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Doom Stock Domestic

UK stock exposure is limited to blue chips. The benchmark FTSE 250 index and another gauge that tracks domestic shares, the UK FTSE Regional Index, have both fallen more than 20% year-to-date, the most since the 2008 global financial crisis. . Worries about the UK economy, rising interest rates and the implications of Brexit have put sectors such as housebuilding, banking, real estate investment and retail under scrutiny.

Still, the dynamic for UK stocks could change next year, according to Susana Cruz, a strategist at Liberum Capital Ltd. He expects British mid-caps to outperform large-caps as inflation eases and the dollar weakens.

IPO shares are declining

It’s not just on market value that London is losing ground. While it was a bad year for IPOs globally, UK capital’s share of proceeds from European initial public offerings fell to its lowest level since 2009. 9% of the whole of Europe.

London has not had an IPO of more than $1 billion this year, and only five deals have raised more than $100 million.

(Except for the headline, this story has not been edited by NDTV staff and is published in a syndicated newspaper.)

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