The London Stock Exchange is one of the world’s oldest trading venues, and can trace its history back more than 300 years. However, since Brexit, London has seen an exodus of companies from its iconic exchange.
Bloomberg reports that the number of London-listed companies has shrunk by 25% over the past decade. Seemingly, London’s prominence as one of the world’s major investment centres is waning. While UK listed companies made up 11% of the MSCI World in the year 2000, today they represent only 4%.
UK equity funds have also seen big outflows in recent years, as investors have reconsidered investing in UK companies.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Company bosses have told the BBC that the UK is facing an “existential crisis”, as the spate of companies delisting and being bought up by foreign investors continues. In recent months, names such as TUI, Superdry and Flutter have all been in the news on account of delisting and potential delisting plans – to name but a few.
More worrying still, though, is talk of Shell’s dissatisfaction with its current valuation. In conversations with Bloomberg, the oil and gas company’s chief executive hinted that he had not ruled out changing the company’s listing location.
“I have a location that clearly seems to be undervalued,” Wael Shawan told Bloomberg’s reporter, adding that he would “have to look at all options” if things didn’t improve.
Despite these concerns, UK equities have seen strong performance so far this year, with the FTSE 100 soaring to record highs. The index is up more than 9% year-to-date. What’s more, it could have further to climb, as the UK market remains undervalued compared to its US and global peers.
The valuation discount on offer in the UK market is good news for investors looking to bag a bargain – however this has also been part of the problem for the London Stock Exchange. Foreign investors have spotted the value on offer and have been swooping in to buy up UK-listed companies, either taking them private or listing them elsewhere.
"Overseas corporates and private equity firms are seeing the value and are taking advantage of those attractive valuations," says Alex Wright, portfolio manager at Fidelity International.
We take a closer look at what’s going on at the London Stock Exchange, and what it could mean for investors and the UK economy’s fortunes.
Is the London Stock Exchange worried?
Chief executive of the London Stock Exchange, Julia Hoggett, has told the BBC that “there’s no sense of panic”. In her view, the UK is “already punching above its weight”.
Despite this, policymakers have clearly seen a need for action. Last year, the Financial Conduct Authority (FCA) set out proposals “aimed at making the UK’s listing regime more accessible, effective, and competitive”.
It noted that the listing regime in the UK had been seen by some issuers and advisers as “too complicated and onerous”. The proposed reports “would significantly rebalance the burden of regulation”, said Nikhil Rathi, chief executive of the FCA.
The UK government has been taking steps to boost investment into the UK too. In his Spring Budget on 6 March, chancellor of the exchequer Jeremy Hunt announced plans to launch a new British ISA. This would give investors an additional £5,000 tax-free allowance to invest in UK companies. The idea is that this could help lift the UK equity market, which has been lagging behind international peers since Brexit.
The UK needs to find a way to channel more domestic investment into UK companies, Hoggett told the BBC.
She said: “The vast majority of all other developed nations who have strong capital markets and strong economies direct far more of their domestic pension money into their own economy than the UK does. And therefore, that is one of the biggest areas of reform that we do still need to see."
In July last year, Hunt launched his Mansion House reforms. These aim to alleviate this issue by increasing pension investment in British businesses.
What do UK delistings mean for investors and the economy?
If you are invested in a company that delists, what does it mean for you?
First of all, it is important to remember that there are several reasons why a company might delist – from going private or being bought out, to failing to meet listing regulations or even going bankrupt. Sometimes companies delist voluntarily. Other times, they are forced to delist.
Delisting can sometimes be a good thing for investors, pushing up the share price. For example, when a private investor snaps up a company, they often buy investors’ shares off them at a premium. Other times, delisting can be a bad thing, resulting in reduced transparency and liquidity.
We take a closer look at this topic in a recent article: “What happens when a company delists from a stock exchange?”
Of course, companies fleeing the UK to find a more attractive listing elsewhere is not good news for the economy, or for the fortunes of the UK stock market in general. For example, Shell is the biggest company in the FTSE 100. If it were to swap London for New York as its listing venue, the value of the index would plummet in response. It would also mean less tax income for the UK government.
Initial public offerings in the pipeline
The good news is that we should see an uptick in the volume of initial public offerings (IPOs) going forward. The latest focus is on Cambridge-based tech start-up, Raspberry Pi. The company is known for selling low-cost computers, and is currently working towards a listing on the London Stock Exchange’s main market.
“This development marks a significant step of progress and shows that efforts to persuade more companies to list are bearing fruit,” says Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“It represents a coup for London, particularly given the reputation the UK is trying to foster as a breeding ground for tech startups,” she adds. “Optimism breeds more confidence, and the recent record rally of the FTSE 100 has enveloped London in a fresh sheen of positivity, following years of disappointment.”
Shein is another company which is rumoured to be considering a listing. “Such a huge listing would be a boon for London markets which have seen very little incoming activity to offset the companies leaving the field,” says Danni Hewson, head of financial analysis at AJ Bell.
That said, “it could ultimately prove a poisoned chalice unless the company can overcome key concerns about its working practices,” she adds.
