London’s Financial Exodus

A Market on the Brink

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By Warney & Elric Langton | 19 December 2024

It has been a bruising year for London’s stock market. Negative headlines have rained down in a relentless barrage, testing even the most optimistic City observers. Initial public offerings (IPOs) have all but dried up, take-private deals are soaring, and the London Stock Exchange (LSE) is shrinking at an unprecedented rate. Once a global powerhouse, the capital’s flagship market now finds itself lagging behind unlikely competitors such as Oman, Spain, and Luxembourg in the global IPO rankings—a reality unthinkable a decade ago. What could be worse, a Labour government with an overqualified customer service operative as the chancellor. We thought the Con-servative were inept; we are now witnessing a rapid decline that will make it look like the lemmings have wings.

The exodus of top UK-listed firms is a topic we have touched on before, and broader media coverage of the listing in New York underscores the severity of the problem. Yet even as London grapples with these challenges, reforms have started to emerge in an attempt to reverse the decline. But are they enough to stem the tide and restore confidence in the City?

A Bleak Year for IPOs

London’s IPO drought is one of the most striking symptoms of the City’s malaise. The capital raised through floats in 2024 pales in comparison to global peers. In a painful twist, niche markets like Oman and Luxembourg have outperformed London in IPO activity—yeas, really! This highlights just how far the City has fallen. While there have been some bright spots—homegrown firms like Raspberry Pi and Applied Nutrition have delivered solid performances after going public—these are exceptions to an increasingly grim rule.

Did you know we produced a SWOT for Raspberry Pi? The IPO was 280p, and the share price stood at 508p.

The IPO market is an economic indicator and a barometer of confidence in a financial hub. London’s struggles on this front send a worrying signal to domestic and international investors alike: the UK is no longer seen as the natural home for ambitious firms seeking capital.

Corporate Exodus: Chasing Valuations and Capital

The valuation disconnect between London and New York continues to widen. Research shows that Britain’s top 100 Companies would collectively gain £460 billion in value if listed in New York, and UK firms are valued 18% lower on average than their US peers. Against this backdrop, it is no surprise that high-profile companies have shifted their primary listings to New York.

This year alone, Flutter Entertainment, CRH, and Ferguson have made the move, citing higher valuations and deeper capital pools. Others, like Ashtead Group and Rio Tinto, are weighing their options, while marquee names like BP and Shell have openly questioned their long-term futures in London. The departures have robbed the LSE of liquidity and prestige, leaving a yawning gap in its roster of blue-chip names.

Take-Privates on the Rise

While London IPOs have plummeted to a low of 20th in Global rankings, private activity has surged. Weak valuations in London have created fertile ground for opportunistic private equity firms, snapping up listed Companies at bargain prices. This trend further erodes the vibrancy of the public markets, shrinking the pool of publicly traded Companies and making the LSE less attractive to investors.

Reforms: Too Little, Too Late?

Despite the doom and gloom, there has been progress on reform. The FCA has overhauled its listing rules to simplify the path to market for new Companies. The government has promised to consolidate the sprawling pensions industry, aiming to unlock capital for investment in growth companies. However, given we have Rachel Reeves from customer service as our chancellor, as you would expect, the markets don’t have a great deal of faith. Regulators are even consulting on a new hybrid stock market to provide an alternative route to public listings. Less fraudulent listing might help!

London’s Limited Use of Regulatory Freedoms Post-Brexit

Amid promises of a post-Brexit “Big Bang 2.0” to reinvigorate London as a global financial power, the reality has been far more subdued. Rather than unleashing a wave of bold regulatory reforms to boost the competitiveness of its financial sector, the UK has taken a cautious, wimpish approach. The hesitation has left many questioning whether London is capitalising on its newfound regulatory autonomy effectively—or at all.

Incremental Institutional Reforms

The UK’s focus has been on reshaping its domestic regulatory framework rather than introducing sweeping policy overhauls. Financial regulators like the FCA and the Prudential Regulation Authority (PRA) have delegated significant rule-making powers, accompanied by increased accountability to Parliament and elected officials. While these reforms signal a move towards a more bespoke regulatory system, they stop short of delivering the transformative change many had anticipated—it’s almost as though London is still governed by Brussels.

Brexit initially raised expectations of a decisive break from EU autocratic financial rules, with the UK poised to chart its own course. Instead, the weak and feeble Con-servative government adopted a cautious approach, opting for gradual divergence from EU standards rather than bold reforms.

Political uncertainty and economic challenges have further dampened the UK’s appetite for bold regulatory shifts. With business confidence already shaken by wavering political direction—Sorry, incompetence, and a challenging macroeconomic environment, policymakers have likely sought to avoid compounding instability with radical financial reforms. However, this hesitancy risks perpetuating the status quo when London faces fierce competition from rival financial hubs. And while the London School of Economics study has demonstrated the UK has, er, shall we say, faired better than the remoaners would have expected or wanted, we now have an even more left government that desired greater EU control (OK, they call it realignment) rather than hitching a ride off the Americans that want less regulations, we are going the other way. Utter madness!

A Hesitant Revolution

The result is that London appears to be caught between ambition and caution. While some reforms are underway—such as the FCA’s efforts to simplify listing rules and promote capital-raising—there is a sense that the UK has yet to embrace the opportunities that Brexit was meant to unlock fully.

This tentative approach could prove costly in a global financial landscape marked by rapid innovation and fierce competition. Without bold steps to distinguish its regulatory framework, London risks being outpaced by more dynamic financial hubs, including New York and fast-emerging Asian markets.

The Need for Bold Action

London’s financial ecosystem stands at a crossroads, and the city must find a way to balance stability with competitiveness. A more decisive use of its regulatory freedoms could help reinvigorate the market, attract global capital, and restore London’s status as a preeminent financial centre. Conversely, inaction risks consigning the City to a slow decline as others seize the initiative.

The time for hesitation has passed—London must now take bold and meaningful action to secure its place in the future of global finance.

Hybrid Markets: A Glimmer of Hope?

One promising proposal is developing a hybrid stock market aimed at bridging the gap between private and public funding. If executed correctly, this could offer fledgling Companies a route to raise capital without facing the full glare of public market scrutiny.

The JP Jenkins index offers a preview of what the hybrid market might look like. As you may be aware, I have an investment in Powder Monkey Brewing Co.; it is listed, which works by matching a willing buyer with a willing seller. There, you will find several de-listed Companies.

Reversing the Decline

The challenges facing the City cannot be solved by piecemeal reforms alone. A coordinated strategy is needed to restore London’s standing as a global financial hub. This includes addressing the structural valuation gap, fostering a more supportive regulatory environment, and actively promoting the LSE as a destination for international firms.

Reinvigorating the IPO market will be crucial. The UK must make it easier for growth-stage companies to go public, reducing barriers to entry and providing incentives for innovative firms to list domestically. For AIM, this means addressing the capital crisis that has driven many small-cap firms into predatory financing arrangements, such as convertible bonds, which destroy long-term shareholder value.

A Watershed Moment

London’s position as a global financial centre is at a crossroads. The exodus of companies to New York, the IPO drought, and the rise in take-privates all point to a systemic decline that requires urgent attention. While reforms offer glimmers of hope, the scale of the problem demands bold, coordinated action to revitalise the City and restore its reputation.

Without such action, London risks becoming a shadow of its former self, overtaken by more dynamic markets. The City has faced existential challenges before and emerged stronger—but this time, the stakes feel higher, the competition fiercer, and the consequences of inaction graver. London must rise to the occasion or risk consigning itself to financial irrelevance.

Opinions

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