Paris stock market is no longer Europe’s largest, top French companies lose more than 10%

France’s political turmoil has seen the country lose its status as Europe’s biggest equity market, less than two years after it snatched the title from Britain.

President Emmanuel Macron’s shock announcement to call a snap election led to a roughly $258 billion drop in the market capitalization of French companies last week. Shares of Societe Generale SA, BNP Paribas SA and Credit Agricole SA, big holders of government debt, fell more than 10%.

Stocks in the country are now collectively worth about $3.13 trillion, just short of the U.K.’s $3.18 trillion, according to data compiled by Bloomberg. The CAC 40 index has erased all of its gains for 2024, a sharp reversal from the record high it hit a month ago.

“We are in a period where there is no certainty for three to four weeks and unfortunately the market could become even more volatile,” said Alberto Tocchio, portfolio manager at Kairos Partners.

At the same time, a confluence of several factors, including improving global growth and a spurt in merger activity, has made UK stocks popular among investors again. Although the country is preparing for its own general election, the outcome is considered more stable as the opposition Labor Party is leading by a large margin.

“We like U.K. stocks for valuation reasons, but also for portfolio diversification, as their sector profile is attractive,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “Also, political uncertainty seems to be greater elsewhere, at least for the time being.”

The FTSE 100 index has hit its highest level so far this year, led by export-reliant stocks such as Shell Plc and Unilever Plc. It has outperformed the Euro Stoxx 50 index over the past three months, with jet engine maker Rolls-Royce Holdings Plc leading the gain.

Globally, the UK now ranks as the sixth largest stock market.

In France, market strategists are still not confident about getting back into equities because of uncertainty related to public finances and policy. Besides banks, toll-road operators Vinci SA and Eiffage SA have fallen on concerns that highways could be nationalized again if Macron’s party loses power.

The news comes at a time when France’s luxury giant was already under pressure due to the uneven recovery in China.

“Given the current unusual political confusion and the high headline risks between now and the election, we see no reason to buy on dips,” Emmanuel Cau, a strategist at Barclays Plc, said in a June 12 strategy note. The two-round vote will be held on June 30 and July 7.

Of course, investors also see some reason to be cautious about the U.K. The July 4 election will be the biggest political change since Brexit, and the new government will have limited fiscal space and face scrutiny from bond watchdogs.

The country’s stock market is also troubled by companies choosing to list in Europe or the US, in part due to pressure from activist investors seeking better valuations.