London, we have a problem. Another week and another City grandee criticises the London stock market. I don’t mean in terms of value, with the FTSE100 index currently ahead by a not-too-shabby 11% on a total return basis this year, but in terms of its attractiveness to raise funding.
This time it’s none other than former Chief Executive of the LSE Xavier Rolet, warning that Britain’s stock market has become ‘deeply uncompetitive’ and risks driving more companies to the US. This of course is on the back of an announcement from the plant hire company Ashtead that it would quit its primary UK listing, following similar moves from the likes of Flutter, TUI, Ferguson and Smurfit Kappa to name just a few. In fact, Bloomberg recently reported that this will be the highest year since 2010 for UK de-listings.
Goldman Sachs reports that London shares now trade at a 52% discount to their US counterparts, rising even higher in certain sectors. It is perhaps no surprise therefore that company boards are starting to look overseas, where an immediate uplift in valuation could be the reward.
It’s not just companies voluntarily leaving that are the problem. Cheap valuations have led to nearly 10% of the FTSE250 disappearing this year through M&A activity, with the likes of Britvic, DS Smith and now Royal Mail all in the process of being taken over. The issue here is that there is nothing coming the other way, with the UK IPO market raising a measly $1bn this year, worse even than 2023 and plunging us down to 20th in the global rankings according to data compiled by Bloomberg. By comparison, the US market raised $41bn.
There should be little doubt that bold changes will be needed to revive fortunes, but for now I wish you all a Merry Christmas!
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
