Is the UK stock market in crisis?

Dafferns Wealth

Cambridge-based tech company Raspberry Pi recently confirmed that it plans to list on the London stock market, which could see it valued at around £500 million.

We’ve also seen reports that Chinese fast fashion brand Shein is considering floating on the London Stock Exchange instead of New York, following issues with US lawmakers.

That’s great news, you might think, but no day is complete it seems without the press talking of a crisis in the UK market post-Brexit. Bloomberg, for example, has reported that the number of London-listed companies has shrunk by a quarter over the past decade.

One notable blow for the London Stock Exchange came last year when chip designer Arm Holdings opted to list its shares in the US rather than the UK. The company’s market value soared to £48.3bn upon its return to the stock market as investors snapped up shares.

Furthermore, Flutter – the owner of gambling brand Power Power – is moving to New York in the summer, and even Shell is openly discussing the possibility of a move.

At the same time, we’ve seen major global businesses being openly critical of the UK and gushing about other nations.

For instance, Microsoft’s President recently told the BBC that the European Union is a better place than the UK to start a business, and last year, Shell Chief Executive Wael Sawan revealed the “folks at the New York Stock Exchange” gave his team an “exemplary welcome”.

When asked about potentially moving to the city, Mr Sawan said: “It would be irresponsible to rule anything out.”

Listing regime set to change
This has certainly set alarm bells ringing in the corridors of power, to the point where Chancellor of the Exchequer Jeremy Hunt recently brought finance bosses together to come up with ideas on how to make the UK a more attractive market to domestic and international companies.

We’ve also seen the Financial Conduct Authority (FCA) unveil plans to “reform and streamline” the UK’s listing rules, which it hopes will help the country attract a wider range of companies, incentivise competition and – crucially – offer more choice to investors.

Julia Hoggett, Chief Executive of the London Stock Exchange, has talked down the notion that the UK market is in crisis, especially as the country is “already punching above its weight”.

“In terms of the pipeline of companies we’re seeing preparing to come to the market, but also in terms of the activity of the companies that are on the market, that is demonstrably not true,” she said.

“We’ve got all the fundamentals here in London, and I see a strong cause for optimism.”

A Treasury spokesperson, meanwhile, has insisted that the UK is “already one of the best places in the world to grow and secure investment”.

“We are taking forward an ambitious programme of capital market reforms to improve the UK’s competitiveness further,” they stated.

However, Ms Hoggett has acknowledged that there is some room for improvement.

“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,” she observed.

“Therefore, that is one of the biggest areas of reform that we do still need to see.”

Shell’s departure may have domino effect
If the likes of Shell – the UK stock market’s biggest company – are publicly failing to rule out a move to New York, it’s clear that all is not well and that policymakers must act, as there could be a huge knock-on effect.

As Charles Hall of investment bank Peel Hunt has said, Shell’s departure would be “absolutely massive”, as other businesses such as BP and major mining companies would follow suit.

This, he stated, would lead to the UK market shrinking and global asset managers putting less money into the country, which would in turn impact on the wider UK economy.

Rest assured, we will be keeping a close eye on developments on the domestic and international financial markets, and taking a detailed look at the FCA’s new listing rules once they have been finalised and what they mean for you.

If you have any questions about managing your investments, please don’t hesitate to get in touch with us.