London market loses an Arm
“New York is a much deeper market than London and… because of Brexit idiocy... the image of the London Stock Exchange has suffered a lot in the international community,” Hermann Hauser, co-founder of Arm, tells Radio 4’s Today. The microchip designer is listing on America’s Nasdaq despite intensive lobbying from Rishi Sunak to pick London, says Simon Foy in The Telegraph.
Hauser says that “Arm could not raise the $10bn it was hoping to attract on the London market.” Last week Irish construction firm Kingspan became the latest company to announce plans to delist from London. The run of delistings wouldn’t be so bad if the City could attract new flotations. Yet in the first three months of 2023, London’s main market saw only two initial public offerings (IPOs) raising a total of £63m, says John-Paul Ford Rojas in the Daily Mail. That’s 99% below the record £5.7bn for the first quarter of 2021.
Pension funds buy bonds
Amsterdam is now the “go-to listing venue in Europe” , say Swetha Gopinath and Michael Msika on Bloomberg. Last year, London accounted for just 8% of European IPO proceeds, the lowest since 2009. Average daily traded volume on the FTSE All-Share index has plunged from £15bn to £4.7bn since 2007. The UK market’s decline “began well before Brexit”. In the early 2000s the British government changed pension accounting rules. The result? The share of portfolios that Britain’s defined-benefit plans invested in UK stocks fell from about 50% in 2000 to just 2% by 2021. The London Stock Exchange “effectively lost its biggest source of capital”.
The accounting changes “required companies to disclose the deficits of their defined benefit pension schemes... one consequence of this rule change seems to have been a shift in the asset allocation of... pension funds away from equities and towards bonds”, says Adam Hoyes of Capital Economics. Yet its role in driving the FTSE’s slump has been “overstated of late”. The “bulk of the switch away from equities in the UK pension and insurance industry occurred between 2000 and the early 2010s”, yet the big valuation gap with US shares only emerged after 2016. Perhaps institutional investors are simply “more downbeat on the long-term growth prospects of the UK” and so favour foreign stocks. Still, in turbulent times and with interest rates rising, cheap British shares at least have limited downside, says Philip Coggan in the Financial Times.
The FTSE 100 is on just 12.4 times trailing earnings and yields 3.7%. While pension funds have fled, individual UK investors seem to be keeping the faith, says Charlotte Gifford in The Telegraph. Data from Interactive Investor shows that the average UK investor has a 30% exposure to UK shares, well above the 4% that UK stocks represent as a share of global equities.