Here’s some advice for investors in UK equities: Don’t. Especially not if you’re a long-term institutional investor, whether from the UK or elsewhere, concerned with the kind of return horizons that underpin a stable portfolio.
A recent Financial Times report underlines the problem of a raft of companies seeking to delist from the London Stock Exchange, typified by CRH, the world’s largest building materials company and a constituent of the FTSE 100. The company has said it’s seeking a potentially higher valuation and greater commercial opportunities in the US.
CRH’s move follows some other notable ones. Plumbing and heating products company Ferguson exited from the FTSE 10 and was listed in the US in May 2022. Mining giant BHP Group departed for a primary listing in Australia in January 2022.
And SoftBank’s Arm, long lauded as the poster child for Silicon Fen and the UK’s continuing ability to innovate and compete in the global technology market, announced on March 3 that it was seeking a US-only listing, dashing UK hopes of a dual flotation and one of the biggest tech IPOs of recent years.
Meanwhile, Bloomberg reported that Citigroup is expanding in Paris, which is outdistancing other European financial centres. According to the news agency, its data from November show that the French stock market now has a combined value of US$2.82 trillion, roughly $2 billion more than in the UK.
The FT analysis highlights the dearth of domestic investors in the UK stock market. Domestic pension schemes and insurers have been retreating from UK equities and now own an average of just 4% of UK stocks in their portfolios, according to figures from advisory firm Ondra Partners.
Some of the blame has been put on revised accounting regulations dating back to 2000. But there’s no doubt that from the corporate end, businesses seeking a listing and equity market support are far more attracted by trading volumes in the US, while access to the European Union provides ever greater incentives for financial firms to move to Paris or other European centres.
So far, UK government initiatives to revitalise the financial sector through its touted Edinburgh Reforms have met with…well, exactly the kind of exodus we’re now witnessing. That ought to show how much faith the business and financial communities have in such changes. After all, the last attempt at a major economic deregulation and revitalisation initiative under former Prime Minister Liz Truss ended in a near financial crisis and the shortest premiership on record.
The fact that the Conservative Party, historically the UK’s most business-friendly, has been in power since 2010 and has still managed to drive the country into economic contraction and the current flight of companies and investment houses underscores doubts about the government’s capability to maintain a positive business environment. The failings of British business culture have often been rehearsed; the failings of British regulatory and political culture are far more blatant.
