Issuing shares in London is becoming less favourable for companies
The City of London could lose its status as the world’s business centre. The reason is the difference in value between the same companies on the New York Stock Exchange and the UK Stock Exchange. Many companies prefer to issuing shares in the US.
Large companies are leaving the UK to be closer to investors. Investors, in turn, are interested in the US market as an opportunity for high returns. Such trends could be decisive for the London Stock Exchange. They will significantly diminish its status in financial circles.
Analysts are worried by talk of oil giant Shell leaving the exchange. In addition, the dynamics of new listings in London look rather pessimistic. According to the Evening Standard, stocks have been attracting less and less investment in recent years:
– in 2021, companies raised a cumulative £12bn on the UK Stock Exchange;
– in 2022, this figure fell to £338m;
– the total amount raised in 2023 was £18.5 million.
In the previous two years, retail investors withdrew £25bn from the stock market. Flutter is among those who have moved their shares to the US market. Local pension funds also do not see the London Stock Exchange as a promising platform. UK shares account for just 4% of their investment portfolios. At the same time, foreign funds hold around 30% of their market investments.
Factors behind the decline in stock market liquidity
Other trends also speak to the stock market crisis. Over the past five years, the FTSE 100 has risen by only 7%. By comparison, the Dow Jones has increased by 54% over the same period. According to Mergermarket:
– from 2014 to 2023, 68 UK companies have issued shares of the London Stock Exchange;
– raising a total of USD 21 billion;
– the listing of 24 UK companies in 2021 raised $6.5bn outside the country;
– Arm’s IPO was the largest among UK companies in 2022;
– the company issued shares on the Nasdaq and raised USD 5.2 billion.
Since 2014, private investors have taken 137 companies off the London Stock Exchange, raising USD148 billion.
According to Lucinda Guthrie of ION Analytics, the UK is experiencing a stock market crisis. Local companies are preferring to issue shares overseas in the hope of attracting more investment. At the same time, liquidity in the UK market continues to shrink. Brexit has also played a negative role. As a result of the country’s exit from the EU, many European companies are leaving the London Stock Exchange. They are looking for lucrative opportunities in the EU that will help them increase their chances.
