London Is Loosing Out

Sebastien Callebaut -

Investors, Funds And Companies Are Fleeing To The U.S. And Europe

According to bankers, an increasing number of UK companies are planning to move their stock market listings to the US. This growing exodus highlights the UK's struggle to attract and keep companies, despite the government's efforts to revive the City and entice businesses from competing exchanges. Executives view the US as a more conducive environment for higher growth and criticize the lack of interest from UK-based investors, particularly pension funds that have increasingly neglected British stocks over the last two decades.

  • Michael Tory, the founder of advisory firm Ondra Partners, commented that "there are no domestic equity investors here — everything else is a symptom."
  • He explains that global investors seek validation from local investors before making investments, and investments from UK-based investors has dwindled

A Broken Strategy

The government is attempting to revitalize the City of London by making it more attractive to companies and investors. One way they plan to achieve this is through the "Edinburgh reforms" which aim to eliminate EU regulations and increase competitiveness against other financial centers. To enhance London's equity markets, the government plans to revamp company prospectuses and reevaluate short selling rules. These proposals represent the most significant shift in Britain's financial services in a generation.

  • However, some bankers argue that these may not be enough to compete with other exchanges, such as Switzerland and Amsterdam, which are also highly appealing to investors
  • Furthermore, company boards are becoming increasingly dissatisfied with the level of scrutiny over executive pay and the perceived "box ticking" exercise of corporate governance in London

US exchanges have also been actively seeking UK companies as they express dissatisfaction with the domestic market. Cassandra Seier, head of international capital markets at the New York Stock Exchange, noted that the exchange engages in extensive outreach efforts by speaking to bankers and companies. She added that "there is a lot of focus on bringing companies to the US, particularly in London".

Low Volumes And IPO Flops

CRH, a large building materials company based in Ireland, is relocating its primary listing from London to New York. This move is motivated by the higher valuations and trading volumes that New York typically offers, making it easier for investors to buy and sell without impacting the price. For instance, daily trading in Apple shares alone is nearly double the value of all trading on the London Stock Exchange.

  • Some high-profile UK public share sales have been unsuccessful in recent years. Deliveroo, a food delivery company, has seen its shares fall 71% since listing in the UK, prompting one of its first shareholders to express regret over not voting for a US listing instead
  • The lackluster performance of the UK market has also attracted bargain hunters, with private investment funds purchasing undervalued publicly listed companies such as defence contractors Meggit and Ultra, supermarket Morrisons, and technology company Aveva

Value Matters

While London experienced a resurgence in 2021, recording its best year for new public listings since 2007, it still lags behind the US in terms of the number of companies and the amount of money raised. Despite this, London's time zone, language, trusted English law, and deep pool of talent continue to make it an attractive place for companies to raise money.

  • Ultimately, however, the most crucial factor for many shareholders is the value of their company
  • As long as their worth is higher in a US market, more companies will opt for a US listing over London

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products. Please note that the writer of this article is not registered as a financial advisor.

Credits

Photo by David Monaghan on Unsplash.