By Rebecca-Barnatt Smith
High-profile departures from the London Stock Exchange (LSE) have become a £10 billion problem for the United Kingdom in recent months, but could silver linings bring fresh optimism for UK investors on the horizon?
With several major companies announcing their intentions to depart the London Stock Exchange in recent weeks in deals worth a combined £10.2 billion, the news that the exodus has caused the LSE to shrink 25% in the past decade is becoming easier to understand but still as difficult to swallow.
One of the latest departures came in the form of wealth management firm Mattioli Woods, which recommended a £432 million offer to be acquired by private equity firm Pollen Street Capital.
Crucially, Pollen Street’s offer represented a 34% premium on Mattiolio Woods stock price at the time, and a 42% increase on its trading average over the six-month period prior. In a barbed announcement.
Mattioli Woods announced its preparations to leave the LSE by acknowledging that it “recognises the opportunities that can be delivered under private ownership…with the support of a growth-focused shareholder” and added that it offers “the flexibility to take longer-term decisions to maximise the growth potential of the business.”
Comprehending the scale of the LSE’s decline throws up some stark figures. London’s IPO proceeds in 2022 were the worst since records began in 1995–until 2023 saw the city slip below the $1 billion mark for the first time.
Since the beginning of the COVID-19 pandemic, London’s FTSE 100 has trailed the likes of the NASDAQ, S&P 500, AEX Index, France CAC 40, and DAX Performance consistently, highlighting a weaker recovery period.
London has also been tasked with overcoming the fallout of Brexit, in which the United Kingdom departed the European bloc and tasked itself with rebuilding its trade agreements independently.
As a result, plenty of uncertainty lingers, but could 2024 eventually pave the way for a turnaround in fortunes?
Assessing London’s Mounting Challenges
With London shedding 25% of its companies over the past decade, the attraction of the city is being challenged on an unprecedented scale.
Total listings fell by 6% in 2023 to 1,836, according to an XTB report based on the London Stock Exchange’s main and junior markets. Just 10 years ago, 2,448 firms had been listed in the city.
Data suggests that the number of companies listed in London fell in nine of the past 10 years, while the total value of companies grew in only three of the last 10 years as a result of significant volumes of delisting.
This worrying data “identifies a problem – and suggests that it is getting worse,” warned Joshua Raymond, director of XTB. “These kinds of trends can take a long time to turn around and will need a concerted effort by all parties.”
“However, London retains all the key attributes that companies and investors look for, the institutions, talent pool, and rule of law that underpins all successful markets,” Raymond added.
Meanwhile, other market researchers have been readily adding more superlatives to underline the worrying situation faced by the London Stock Exchange.
“We are currently in a doom loop, where valuations are low, liquidity is reducing, investors are seeing withdrawals and there is little desire to IPO,” explained Charles Hall, head of research at Peel Hunt. “If this continues, the UK could lose a crucial part of its financial ecosystem.”
It’s becoming increasingly clear that London can’t continue hemorrhaging its brightest listings, but what’s being done to turn fortunes around? And can institutions once again look to the UK capital as a haven for innovative firms?
The Return of ‘Cool Britannia’
While the London Stock Exchange certainly must act decisively to address the ‘doom loop’ of companies exiting the city, there are certainly several positive signs ahead for the city.
Firstly, you could be forgiven for finding the news that the FTSE 100 is currently closing in on an all-time high value as the index has climbed more than 2.5% in Q1 2024 to within touching distance of its February 2023 peak of 8,004.
The FTSE 100 is generally performing well in the wake of the COVID-19 pandemic, although its rate of recovery still lags behind many competitors.
Positive market sentiment has returned to the FTSE as the UK’s long-term battle to control inflation has paved the way for an expectation that interest rates will begin falling later in the year.
Banking on Innovation
Another possible silver lining came in 2023 as nine of Britain’s largest pension providers agreed to boost their investments in high-growth UK companies in the hope that £50 million of funding could be secured for domestic innovators.
In its recent budget announcement, the UK Treasury unveiled its proposal to create a venue where private companies can trade their shares in what’s been labelled the Private Intermittent Securities and Capital Exchange System (PISCES).
The plans are designed to allow companies to scale their operations, provide liquidity, and empower more shareholders to realise their gains.
Another key feature of the 2024 budget was that British citizens will get the opportunity to invest an extra £5,000 tax-free into UK equities via a specialised British Individual Savings Account (ISA).
Wooing Institutions
Encouraging more retail interest in London is one thing, but it will be the talk of bringing institutional investment back into the city that will carry a major positive impact on stemming the outflows of business.
However, London’s resilience in 2024 despite widespread LSE exits may come as a positive sign for institutional investors looking to take advantage of a settling market before it begins to draw more widespread interest.
With many major prime services for brokerages still prioritising London as a location for specialist trading servers, it’s easier than ever for traders to take advantage of market opportunities in real time and build an innovative portfolio ahead of competitors.
London Remains an Innovation Leader
In recent weeks, we saw some important indicators that London’s lust for innovation is far from abating. March 2024 saw plans surface to convert a former headquarters for Meta into a science and technology hub as part of a joint venture with British Land and asset manager Royal London to be located in the Euston area.
This news comes as other leading innovators confirm that they’re happy to remain in the city. Particularly, the reassuring words of Wise CEO Kristo Kaarmann highlight that firms are arriving in London with a more long-term outlook for their listings.
“We’re conscious that the environment and the listing rules are somewhat more developed, especially for tech companies, in the US,” explained Kaarmann. “But we’re also aware that the UK and London are looking to catch up in some aspects and improve.”
“We’re happy to see this happening but we’re also comfortable in London. Europe is our base, and although we’re an international company, the stock exchange works for us.”
While the LSE still needs to address many issues to compete with the likes of the NASDAQ and S&P 500, plans to open the city up to innovative firms as the fallout from Brexit gives way to a more stable future is essential.
By adopting a growth-first approach, institutions will once again be capable of looking to London as a bustling tech hub and a place that demands attention.
Rebecca-Barnatt Smith is a freelance journalist covering all things business, stocks and marketing strategy for startups across the globe.
