The London Stock Exchange (LSE) can trace its origins back to the capital’s 17th century coffee houses. This makes it one of the world’s oldest stock markets.
Unfortunately, some investors think the current LSE is just as antiquated. That’s because ‘old economy’ banks and commodity-related stocks are heavily represented, while technology companies account for just 1% of the FTSE 100‘s market cap.
As a result, UK stocks are generally cheap, which is tempting companies to list abroad. This has understandably caused much public hand-wringing about the future of London’s stock market.
Falling numbers
In 2003, there were over 2,000 companies on London’s main market. Today, we’re looking at half that number. And the UK now has just a 4% share of global markets, which is down more than 50% in 25 years.
That’s an alarming decline, though the US also has fewer listed firms than it used to have. It’s just that many tech companies there have scaled to enormous proportions, meaning the US now makes up around 60% of the total world equity market value.
Lately though, there have been noteworthy defections from the LSE. Construction materials giant CRH announced plans to shift its primary listing to Wall Street from London, while betting firm Flutter Entertainment is following suit.
Plus, Cambridge-based chip designer Arm Holdings has chosen a US-only listing (for now), dealing a massive blow to the LSE.
IPO draught
The problem is compounded by the complete drying up of initial public offerings (IPOs). Cash raised via new listings in London plummeted more than 80% in the first quarter of this year compared to last year.
However, this isn’t specific to the UK. When investor sentiment sours, companies delay going public across the globe. So this dearth of IPOs is hardly new or shocking.
In 2009, following the financial crisis, only five companies debuted on London’s main market. That was the fewest since 1987. But the IPO market fully recovered then and I expect it to once again.
Not always greener
In most specific cases, I think it makes perfect sense to list abroad. For instance, building materials firm CRH makes most of its profits in the US, where there is a construction boom under way.
Meanwhile, many US states have liberalised their sports gambling laws, providing Flutter with an immense opportunity.
However, some cases don’t make sense to me. Take British used car retailer Cazoo as an example. It listed in the US in 2021, raising about $1bn, despite having no operations there.
At the time, its founder said: “The UK is an amazing place to build a business but…US investors understand better businesses [which are] investing in the short term for future growth“.
Fair enough.
But how have those US investors treated unprofitable Cazoo stock since? Oh, it’s currently down 99.36%.
So maybe the grass isn’t always greener on the other side of the pond.
Returns
The LSE is still much larger than most other stock markets and contains world-class companies such as AstraZeneca, Shell, and Diageo.
If I were unable to generate decent UK returns then I would worry. But nearly every stock I own has raised its dividend in recent months.
So for me, the LSE remains an income seeker’s paradise and I don’t think it’s in danger.
