Indices: God Save The Footsie

The news had caused a sensation at the end of 2022: London had lost its status as Europe's leading financial center in terms of capitalization to Paris. This situation, perceived as a real crime of lèse-majesté, had seen the French capital dominate for almost a year and a half. However, this year marks a turnaround in the European stock market landscape. London has regained its leadership position. This recovery comes at a time when the CAC 40 has just experienced its fifth consecutive week of decline, losing almost 1,000 points since its peak in May.

The FTSE 100, created in 1984 by the Financial Times, is the flagship index of the London Stock Exchange. Its name, which stands for "Financial Times Stock Exchange", is also known as "footsie". The index is based on the country's 100 largest market capitalizations, representing almost 70% of the total capitalization of the London Stock Exchange. The index has grown by 7% this year, and is broken down into small and mid-cap stocks with the FTSE 250 (+4.5%) and the FTSE 350 (+7%), as well as the broader FTSE All-Share (+6.8%).

The FTSE 100 has a fairly homogeneous sector composition overall, but is often regarded as an "anti-ESG" index. Indeed, although the Financials (21.8%) and Consumer Staples (16.3%) sectors represent the largest weightings, the index is known to have a high proportion of sectors with ESG risks, such as Industrials (11.8%), Energy (11%) and Basic Materials (7%).

According to Sustainalytics ratings, more than half the index has a medium or higher ESG risk. Among the top 10 largest weightings, four represent high risk, including the two oil giants Shell, the index's largest weighting at with 7.9%, and BP plc sixth with 3.1%, followed by tobacco group British American Tobacco seventh with 2.9%, and miner Rio Tinto tenth with 2.5%. Compared to the S&P 500, the Nikkei and the Euro Stoxx 50, the FTSE 100 is the index with the most companies with a high ESG risk.

The other two largest weights in the index are pharmaceutical company AstraZeneca, which accounts for 7.7% of the index, and HSBC, which accounts for 6.6%. The surprise of the year was Unilever, which climbed to fourth place, accounting for 5.6%. These two companies also performed well this year, seeing their share prices rise by 15% and 24% respectively. Unilever, the world's beauty and personal care products giant, is enjoying a remarkable surge in popularity. Its growth is based on three strategic pillars: streamlining its portfolio, strengthening its Prestige and Wellness sub-segment, and increasing its presence in India.

In addition to HSBC, the Financials sector is the main contributor to the index's performance - as is also the case for other European indices such as Germany's DAX, Italy's MIB and Spain's IBEX. Banks Natwest Group (+77%), Barclays (+67%), Standard Chartered (+44%), insurance companies and Just Group (+66%), Beazley (+46%), and above all the investment management companies 3i Group (+50%), Hargreaves Lansdown (+48%) all posted impressive performances this year. Investor fears about the UK government's future budget are boosting demand for client advisors in the country.

At the same time, the extractive sectors (energy and basic materials) are severely weakened by the tense geopolitical situation in the Middle East and the negative outlook for Chinese growth. As mentioned above, while Shell (-1%) is holding up well, BP Plc has fallen by 17.7% since January. Among the British mining giants, Rio Tinto lost 15%, while Glencore fared even worse, shedding 19%. Only Anglo American climbed 20%, thanks in particular to rumours of a takeover by BHP. Antofagasta (-0.8%) is treading water, even though copper and gold prices are in its favor.

The fastest-growing company this year is Europe's leading industrial packaging manufacturer DS Smith (+93%), which is the subject of a takeover bid by US packaging company International Paper, which has supplanted the offer from another industry heavyweight Mondi (-29%), whose share price is suffering as a result of this bad news. However, the $7.2 billion (€6.8 billion) takeover bid is still on hold, pending a favorable response from the European competition authorities, who must give their verdict by January 10, 2025.

Finally, aircraft engine manufacturer Rolls-Royce Holdings (whose brief analysis you can read here) is the second-biggest riser on the FTSE 100, with +81% since January. On the other side of the spectrum, JD Sports Fashion is struggling to please in a sluggish sportswear sector, losing 39% of its capitalization.

FTSE Russell (the London Stock Exchange Group 's index subsidiary) hinted at potential reshuffles in the FTSE 100 and FTSE 250 indices. B&M European (-38%), Frasers (-17%), and Vistry (-24%) could leave the FTSE 100, making way for Alliance Witan (+15%), Games Workshop (+39%), and St James's Place (+26%). In the FTSE 250, Ceres Power (-10%), Close Brothers (-73%), PZ Cussons (-47%) and John Wood Group (-69%) could be replaced by Deliveroo (+15%), Diversified Energy (+14%), Mobico (-1.7%) and Oxford Nanopore Technologies (-31%).