The beleaguered London Stock Exchange is now grappling with a host of companies ditching local listings in favour of the US.
Home to companies that dominate global industries, including AstraZeneca, Shell and HSBC Holdings, the FTSE 100 Index is an international benchmark. However, trading volume has slumped in recent years and some British companies have picked other markets to list their shares.
Companies raised just $1bn on the LSE in 2023, the least since 2009. The underperformance was remarkable even in the context of a global drought in initial public offerings.
An especially bitter blow was London’s failure to secure the listing of one of the UK’s most important technology companies: Cambridge-based chip designer Arm Holdings. Despite fevered lobbying by government ministers, and an offer to relax UK listing rules, Arm’s Japanese parent company SoftBank Group chose New York for its return to public markets.
The LSE activity has shrunk dramatically from its peak before the global financial crisis, with average daily traded volume on the FTSE All-Share Index falling to about £3.4bn ($4.3bn) in February 2024 from almost £15bn in the same month of 2007.
Investors tend to pay less for illiquid stocks as they risk a bigger loss when they come to sell. The MSCI UK share index was trading at a 46% discount to its US counterpart as of late February, based on forward price-to-earnings ratios.
Aside from those relatively low valuations, London’s allure as a centre for IPO activity has been diluted by a glut of alternative funding from private equity. That’s been compounded by some woeful stock performances in the wake of high-profile listings, including Deliveroo, Dr Martens and Ithaca Energy.
Meanwhile, headlines around companies leaving London for other exchanges have hurt the City’s image as a place to do IPOs.
The LSE is being muscled aside by rival stock exchanges. The total capitalisation of London-listed equities fell from a high of $4.3tn in 2007 to about $3tn in February 2024, according to data compiled by Bloomberg.
Over the same period, the value of US stocks almost trebled to $53tn.
Paris overtook London as Europe’s largest stock market in 2022. London is only the seventh-biggest globally, also trailing the US, China, Japan, Hong Kong and India, in a powerful reality check for an institution whose history stretches back more than 200 years.
The decline began well before Brexit and the coronavirus pandemic, as a deeper productivity crisis pushed Britain’s economic performance into the slow lane in relation to other Group of Seven developed nations.
London is no longer thought of as the go-to listing venue in Europe, with some companies choosing Amsterdam, drawn by a more favourable regulatory environment. In 2023, the UK capital’s share of European IPO proceeds fell to 7.1%, the lowest since the global financial crisis.
In December, the UK’s finance regulator set out its latest plans to simplify its listings regime and revive interest in London’s stock markets. The Financial Conduct Authority confirmed it will replace the standard and premium listings rules with one set of “streamlined eligibility and ongoing requirements.”
Chancellor of the Exchequer Jeremy Hunt was additionally considering ideas including creating a tax-free savings account for investing in British stocks as well as requiring pension funds to disclose their allocations to different UK asset classes.
There are growing concerns about Britain’s lagging economic performance since the global financial crisis in 2008.
Since former Prime Minister Margaret Thatcher unleashed a wave of privatisations in the 1980s, the LSE has been a symbol of Britain’s free-market economy.
But London’s wider problems appear to fit the narrative of a nation whose economy has run into trouble, hit by under-investment and the jolt to trade from Brexit.