London’s status as Europe’s top financial center has been at risk over the past few years.
There are 25% fewer companies listed on the UK stock market than a decade ago, reflecting a long-term downward trend in IPOs and some high-profile delistings. The trend is not limited to one industry, with technology and construction companies either opting to list overseas or go private.
The worrying situation has even prompted the CEO of Shell (which ranks among Europe’s Fortune 500 companies and is the largest company in the FTSE 100) to consider packing his bags and heading to the United States
Yet London Stock Exchange chief executive Julia Hoggart seems optimistic. In comments to Congress, she said there was “no need to panic” because the country was “already stretched beyond its capacity.” British Broadcasting Corporation Thursday.
In contrast, the runaway growth of U.S. tech giants including Google and Apple (Apple itself is worth more than the top 100 London-listed companies) has distorted the London Stock Exchange’s view, Hoggart said.
“When you strip them out and look at actual companies in the U.S. that are similar in size to British companies, they haven’t really performed well,” Hoggart said, adding that because of London’s “all fundamentals,” she Feel optimistic.
Does she have a point?
London does have the foundations of a major exchange, not least a strong ecosystem of investment banks, lawyers and institutional investors, making London one of the most important financial centers in the world.
But given the recent spate of bad news, it’s hard for public markets to see the bright side. Take Cambridge chipmaker Arm, for example, which launched the largest IPO of 2023 in September. Although the company is British, it chose to list in New York, valuing it at more than $54 billion.
Flutter Entertainment, a £29.7 billion ($37.6 billion) Irish sportsbook, also recently voted to move its primary listing to the United States by the end of the month, while Germany-based TUI will soon delist from London .
Despite some good news – this week computer maker Raspberry Pi said it plans to launch in the UK – the fact remains that launches are few and far between, with applications hitting a six-year low in 2023.
It even jeopardizes London’s once unassailable position among its European rivals – last year, Paris briefly became Europe’s largest stock market.
In fact, according to Bloomberg, the London Stock Exchange will account for only 2% of the $12 billion raised through IPOs globally in 2023, while other European markets have rebounded after a lull in listing activity.
Given that the UK economy accounts for around 3% of global GDP, this figure no longer suggests that it is performing better than it should.
Why does this happen?
Key concerns about the UK market include a relatively complex listing regime, strict governance requirements, underperformance of new entrants to the stock market such as Dr. Martens, and the potential for higher valuations in the US, particularly for technology companies.
But it is also dealing with a long-term trend of companies being taken private – as announced by cybersecurity firm Darktrace – an issue that is not limited to the UK, as JPMorgan chief executive Jamie Dimon said last year As noted in a letter to shareholders this month, the role of public companies in the financial system is generally more limited — and while U.S. public stocks have been falling since the turn of the century, the number of private equity-backed companies has increased significantly. .
Hoggart himself has raised another concern: Britain’s inability to attract top management talent because pay packages at London-listed companies are lower than those of their American counterparts.
“We have hindered ourselves from creating a level playing field to compete with the rest of the world,” she said in an interview on the Bloomberg Podcast last year.
A spokesperson for London Stock Exchange Group told wealth The health of UK capital markets isn’t just about the number of IPOs. The amount of equity raised in London increased by more than 38% year-on-year, more than the two second-ranked European exchanges combined.
“We are encouraged by the continued emergence of companies seeking IPOs and expect further activity following the implementation of new listing rules in the second half of 2024,” a spokesman said.
What are you doing?
As London’s problematic slide has been ongoing for some time, city and government officials have been working to address the issue.
As a spokesman for the London Stock Exchange hinted, the Financial Conduct Authority is working on more streamlined listing rules to lower the barriers to entry for companies looking to list in the UK. Eligibility Requirements.
Chancellor Jeremy Hunt has been exploring ways to invest pension funds in the UK and plans to meet business executives on Thursday to find ways to attract more companies to list. Hoggart said this would be a key reform to keep money at home.
Such new reforms, if implemented, could be a game-changer at a time when the UK economy is growing and recovering from last year’s economic woes.
