London needs to win back nervy investors

LONDON’S stock market is struggling, and it is not merely a blip. Investors are increasingly pulling their money out of the UK in search of better returns in the United States. As a result, new flotations — that is, companies raising funds to join the London Stock Exchange (LSE) — have all but collapsed.

The numbers are stark. While new listings raised £12 billion on the LSE in 2021, that fell to £338 million in 2022 — and so far this year the figure is a paltry £18.5 million. And that is just new business. Small investors have actively pulled £25 billion from the stock market over the past two years.

Meanwhile, big-name London-listed companies such as Paddy Power owner Flutter are an example of those moving their stock listing to the US. There are even whispers that a corporate giant on the scale of Shell could leave the capital, which would transform a torpor into a full-blown crisis.

And it is not difficult to see why. Over the past five years, the FTSE 100 has climbed seven per cent. Over the same period, the US Dow Jones is up 54 per cent. The problem even for companies who are committed to London is that they face substantial shareholder pressure to up sticks to New York, because comparable companies listed in America simply enjoy higher valuations.

Who is to blame? The grim state of the wider UK economy does not help, but then again the FTSE has often performed well, independently of wider macroeconomic conditions. Brexit certainly has not helped. Companies with a major EU presence are looking to European indices, while some US investors have been put off by the political turmoil of the past few years.

Yet this is also about British investors. The fact is that the total ownership of UK-quoted equities by insurance and pension funds has fallen dramatically, from 45.7 per cent in 1997 to 4.2 per cent in 2022 — the lowest level ever recorded. If our institutions, not least pension funds, will not invest in Britain, why should anyone else?

The Government is aware of the problem and the British ISA, offering retail investors a higher tax-free allowance, is an attempt to address it. But ministers know this is window-dressing. Unless and until institutional investors are incentivised — or pushed — to place their funds in UK equities, the exodus from London is only likely to accelerate.