The Decline of the London Stock Market: A Struggle for Recovery
Introduction
Fourteen years ago, the American stock market was facing a crisis, with prices falling and small IPOs becoming extinct. In contrast, London’s stock market was thriving, boasting a 15 percent growth in the number of listings over a decade. However, the tables have now turned, and it is the London market that is struggling while American bankers look on enviously. This article explores the current state of the London stock market and the initiatives taken to revive it.
The Changing Fortunes
At present, the UK stock market is facing significant challenges, with foreign buyers acquiring British companies at low prices. The once-bright lights of America’s capital reserves have dried up, leaving UK companies depleted and struggling to attract investors. As a result, the UK government has taken measures to support the market’s recovery through initiatives such as the review commissioned by Chancellor Jeremy Hunt, which aims to address the lack of research in London.
Proposed Solutions
Rachel Kent, a city lawyer, suggests that all listed companies should be guaranteed analysis coverage, with reports available to investors through a central platform. Kent’s review proposes that funding for this analysis could come from a transaction tax or from the government. Additionally, Kent emphasizes the importance of making research available to retail investors, as they currently rely on unreliable sources like chat rooms for information.
The Importance of Research
Research plays a vital role in keeping stock markets running smoothly. Without it, valuations, interest, and liquidity suffer, and investors are more likely to stay away. However, a few years ago, the implementation of the EU directive, Mifid II, changed the landscape of research in the UK. Brokers are now required to pay for research, resulting in falling institutional interest in UK companies and a decline in investor demand for shares.
The Impact on Growing Companies
Growing companies heavily rely on research to raise capital. The lack of investment research in sectors such as technology, life sciences, and smaller companies makes it challenging for these businesses to attract investors and secure funding. Consequently, many young companies are opting out of going public and are being acquired by larger players instead. A study reveals that the number of high-growth British companies being acquired is significantly higher than those pursuing initial public offerings.
Empowering Retail Investors
Retail investors, who were once major shareholders in the London market, now own only about 12 percent. While active investing was considered a high-risk activity, it can also be beneficial for moderately well-off individuals. However, barriers are raised to keep retail investors “safe,” including restricting access to stock research. This further worsens the situation, as investors cannot evaluate the risks associated with buying shares. Enabling retail investors to make more informed decisions would not only benefit individuals but also help startup companies thrive.
Unique Insights and Perspectives
Beyond the challenges faced by the London stock market and the proposed solutions, there are several unique insights and perspectives worth exploring:
The Role of Technology
Advancements in technology have significantly impacted stock market dynamics. Algorithmic trading and artificial intelligence are shaping the way stocks are traded, analyzed, and valued. Understanding how technology influences the stock market is crucial for investors to make informed decisions.
The Influence of Global Events
The impact of global events, such as economic crises or political developments, on stock markets cannot be understated. Analyzing these factors and their effects on the London stock market can provide valuable insights for investors.
The Rise of ESG Investing
Environmental, Social, and Governance (ESG) investing has gained significant traction in recent years. Assessing companies based on their environmental and social impact, as well as their governance practices, has become increasingly important for investors. Understanding how ESG factors affect the London stock market can help investors align their portfolios with their values.
The Role of Behavioral Finance
Behavioral finance explores how psychological biases and irrational behavior influence financial decisions. Understanding how investor behavior affects stock market trends and opportunities can provide valuable insights for investors looking to maximize returns.
Conclusion
In light of the challenges facing the London stock market, it is essential to implement measures that support its recovery. Ensuring access to quality investment research for retail investors can empower them to make informed decisions and contribute to the growth of startup companies. Additionally, exploring emerging trends and factors influencing the stock market can help investors navigate the evolving landscape. By staying informed and adaptable, investors can seize opportunities and thrive in the ever-changing world of stocks and investments.
Summary:
Fourteen years ago, the American stock market was thriving while the London stock market was suffering a decline. However, the tables have turned, and the London market is now facing challenges. Foreign buyers are acquiring British companies at low prices, and the lack of research and falling investor demand are hindering the market’s recovery. Initiatives, such as a review commissioned by Chancellor Jeremy Hunt, propose guaranteeing analysis coverage for listed companies and making research available to retail investors. The decline in investment research has made it difficult for growing companies to raise capital. Retail investors, once major shareholders, now own only about 12 percent of the London market. Exploring unique insights and perspectives on technology, global events, ESG investing, and behavioral finance can provide valuable knowledge for investors. By implementing measures to empower retail investors and staying informed about emerging trends, the London stock market can regain its strength and contribute to economic growth.
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Fourteen years ago, the American stock market was sweating. There had been a “great depression” in prices. Small IPOs were virtually extinct and the market was failing to retain and nurture listed companies. American bankers looked enviously at London with its thriving market and 15 percent growth in the number of listings in a decade, a stark contrast to the American market which had suffered a decline of nearly 40 percent during the same period. period.
Oh, how the tables have turned. Now it is the London market that is in depression and the British market negotiators who look with envy on the other side of the pond. It would be a huge exaggeration to say that the UK stock market is on its knees, but it certainly looks like it has been in a fight.
Foreign buyers are snapping up British companies on the cheap; our plc they go because America’s bright lights and once-deep reserves of capital have dried up, leaving growing companies depleted. There is hardly any news.
The situation is so worrying that the government has supported initiatives to help the market recover, including a review into the lack of research in London, commissioned by chancellor Jeremy Hunt, and city lawyer Rachel Kent was tasked with break the locks. at this particular door.
kent’s review proposes that all listed companies be guaranteed analysis coverage with reports available to investors through a central platform created by the Treasury, the Stock Exchange and a selected operator. Funding for the analysis could come, for example, from a transaction tax or from the government.
But what’s really significant is that Kent argues that the research should be made available to retail investors.
“I recommend that regulations relating to access to good quality investment research be reviewed to facilitate the provision of research to retail investors. Today, without access to the same research as institutional investors, too many retail investors rely on information sources like chat rooms,” says Kent.
Research (broker notes, analysis, call it what you want) is a vital cog in keeping stock markets running smoothly. Without it, valuations, interest and liquidity suffer as investors stay away.
Until a few years ago, City brokers carried out abundant research supplies. From the largest companies to the smallest newcomers, companies were analyzed, inspected and written about. But then a new EU directive, Mifid IIaimed at injecting transparency into the market, was unleashed in the UK.
Brokers must now pay for research, rather than receiving it as part of a “combined transaction” where the costs are not visible. However, this well-intentioned reform, coupled with falling institutional interest in UK companies, means investor demand for shares has plummeted and with it the flow of companies to the market.
Without the oxygen of research, growing companies struggle to raise capital. Mike Coombes, head of external affairs at PrimaryBid, a platform that offers access to IPOs, sees the lower levels of investment research in the UK in sectors such as technology, life sciences and smaller companies as particularly damaging. “This makes it more difficult for companies in these sectors to attract investors and raise capital,” he says.
It’s one of the reasons why many young companies rule out going public as an option when they’re ready to grow, ending up instead as a tasty morsel for a bigger player. A study commissioned by investment manager Charles Stanley from data provider Beauhurst reveals that 896 high-growth British companies will be acquired in 2022 (40 per cent by foreign buyers), compared to just 121 in 2013. On average, only 0.83 percent of high-growth companies The companies Beauhurst oversees opted to pursue an initial public offering.
Retail investors were once a major shareholder in the London market, owning about 50 percent in the 1960s. They now own about 12 percent. Nick King, author of the Center for Policy Studies article Shopping therapy, notes that savers in the UK hold around £1.8 trillion in cash, money that often remains locked up for years but could be invested to earn much higher real rates of return. Held as cash, inflation is eating away at this pile of assets.
Despite warnings to the contrary, active investing is not a high-risk activity best left to the rich. If done the right way, with proper care and preparation, it can also benefit moderately well-off people.
But at every turn, barriers are raised to keep retail investors “safe,” and one of them is keeping stock research out of their hands. This makes the situation even worse: you can buy shares at a new price but you can’t read the studies that would allow you to evaluate the risks! Even “business-friendly” research can be useful because it will contain rich factual information, says former City analyst Robin Hardy.
Enabling retail investors to make more informed decisions is a no-brainer and their capital will help our startup companies thrive.
It will be months before we know what part of Kent’s plan will be implemented, but we should all fervently hope that the outcome is right for individuals, the stock market, and the economy.
Rosie Carr is the editor of Investors’ Chronicle
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