London’s status as Europe’s most important financial center has been under threat for several years.
There is now 25% There are fewer companies listed on the UK stock market than there were a decade ago, reflecting both a long-term downward trend in IPOs and some high-profile delistings. This trend is not just limited to one industry, but also to technology and construction companies that are either opting for IPOs abroad or going private.
The alarming situation has even prompted Shell’s CEO – who is at the helm – to do so Fortune 500 Europe and is overwhelmingly the largest company in the FTSE 100 – you should think about packing up for the USA
Nevertheless, Julia Hoggett, CEO of the London Stock Exchange, seems optimistic. She argued in her comments that “there is no sense of panic” as the country is “already outgrowing its borders.” The BBC on Thursday.
Hoggett said the rapid growth of US tech giants, including Google and Apple (which are individually worth more than the 100 largest London-listed companies), distorts the perception of the London Stock Exchange in comparison.
“If you take them out and look at the actual companies that are a similar size of company in the U.S. to what we are in the U.K., they haven’t really outperformed,” Hoggett said, adding that London has “all the basics,” she said optimistic.
Is she right?
London has the foundations for a major stock exchange, not least the powerful ecosystem of investment banks, lawyers and institutional investors that make the city one of the world’s most important financial centers.
However, given the recent bad news, it is difficult to see the positive side of public markets. Take, for example, Cambridge-based chipmaker Arm, which was founded The largest IPO of 2023 in September. Despite being British, the company chose to list in New York, valuing it at over $54 billion.
Flutter Entertainment, an Irish sports betting company with a market capitalization of 29.7 billion pounds ($37.6 billion), also recently voted in favor move its main entry to the US by the end of this month, while based in Germany TUI is about to be delisted from London in favor of Frankfurt.
While there has been some good news – this week computer maker Raspberry Pi announced it is planning a UK listing – the fact remains that IPOs are thin on the ground, with the number of applicants in 2023 reaching its lowest level in six years.
It has even threatened London’s once unassailable position among its European rivals – last year Paris briefly became Europe’s largest stock market.
In fact, in 2023, the LSE accounted for a meager 2% of the $12 billion in funding raised through IPOs worldwide. Bloomberg reportedwhile other European markets regained momentum after a collapse in stock market activity.
Given that the UK economy accounts for around 3% of global GDP, this figure no longer suggests it punches above its weight.
Why is it happening?
Key concerns in UK markets include a relatively complex listing system, strict governance requirements, poor performance from newer entrants (such as Dr Martens) and the potential for higher valuations in the US, particularly for technology companies.
But it is also about a longer-term trend of companies being privatized Cybersecurity company Darktrace has announced that this will be the case – a problem that is not limited to the UK, as JP Morgan CEO Jamie Dimon highlighted in a letter to shareholders Last monthPublic companies generally play a smaller role in the financial system – while publicly traded stocks in the US have declined since the turn of the century, the number of private equity-backed companies has increased significantly.
Hoggett himself raised another concern: the UK’s ability to attract top talent to its management worse wage packages for London-listed companies compared to their American competitors.
“We have prevented ourselves from creating a level playing field where we can compete with the rest of the world,” she said in a Bloomberg podcast interview last year.
A spokesman for LSE Group said this Assets that the health of the UK capital markets does not just depend on the number of IPOs. The amount of equity raised in London increased by over 38% year-on-year – more than the next two largest European stock exchanges combined.
“We are encouraged by the pipeline of companies seeking to go public and expect further activity following the implementation of the new listing rules in the second half of 2024,” the spokesperson said.
What is being done?
As London’s problematic slump has been going on for some time, city and government officials have tried to address the problem.
As the LSE spokesman suggested, the Financial Conduct Authority is still working harder simplified listing rules This will lower the barrier to entry for companies wanting to list on the UK stock exchange. The proposal includes introducing a single listing category and easing listing requirements for IPOs.
Chancellor Jeremy Hunt has been exploring pension investment opportunities in the UK and plans to meet with business leaders on Thursday to find ways to attract more entries. Hoggett said this was an important reform to keep money in the country.
At a time when the UK economy is growing and recovering from last year’s economic problems, such new reforms – if and when they are implemented – could still make a crucial difference.