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London’s market appeal fading amid plunge in volumes and IPOs
London is now 7th biggest stock market globally, trailing US, China, Japan, France, Hong Kong and India, in a powerful reality check for an institution whose history stretches back more than 200 years
June 07, 2023 | 12:31 AM
The UK now appears to fit the narrative of a nation whose economy has run into trouble, hit by under-investment, jolt to trade from Brexit, labour shortages and striking workers.After a tumultuous year in which it lost the top spot among Europe’s stock markets, London is now grappling with slumping volumes and dearth of initial offers.Since the wave of privatisations in the 1980s, the London Stock Exchange has been a symbol of Britain’s free-market economy.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.Activity has shrunk from its peak before the global financial crisis, with average daily traded volume on the FTSE All-Share Index falling to about £3.7bn ($4.6bn) in May 2023 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. While London still rivals New York as a global financial hub, the LSE is being muscled aside by rival stock exchanges.The total capitalization of London-listed equities fell from a high of $4.3tn in 2007 to about $3tn in May 2023, according to data compiled by Bloomberg.Over the same period, the value of US stocks more than doubled to $44tn.Paris overtook London as Europe’s largest stock market in 2022.London is now 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; the coronavirus pandemic and a deeper productivity crisis pushed Britain’s economic performance into the slow lane in relation to other Group of Seven developed nations.New listings all but disappeared from London in early 2023, with three tiny companies floating in the first three months of the year. They raised $14mn, marking the worst quarter for the exchange since at least 2009.The underperformance was remarkable even in the context of a global drought in initial public offerings.Notable, the LSE failed to secure the listing of one of the UK’s most important technology companies — Cambridge, England-based chip designer Arm Ltd.Despite fevered lobbying by government ministers, and an offer to relax UK listing rules, Arm’s Japanese parent company SoftBank Group Corp chose New York for its return to public markets.Aside from the relatively low valuations on offer, London’s allure has been tarnished by a glut of private equity funding and some woeful stock performances after high-profile listings, including Deliveroo, Dr Martens and Ithaca Energy.Indeed, the London market is facing threats from multiple directions.UK-listed companies are increasingly targeted by US buyout funds and other investors seeking to take advantage of a weaker pound and depressed valuations.In a wider sense, Brexit has forced banks to beef up their presence in rival financial centres such as Paris, Amsterdam or Frankfurt.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 2022, the UK capital’s share of European IPO proceeds fell to 8%, the lowest since the global financial crisis.Now, the Financial Conduct Authority wants to replace its premium and standard listing categories with a single offering and make IPOs less complicated and onerous.It plans to make it easier for companies to have dual-class share structures, which are favoured by some entrepreneurs who want to keep control of their businesses even after they have gone public.
June 07, 2023 | 12:31 AM