London’s status as Europe’s top financial hub has been at risk for the last few years.
There are now 25% fewer companies listed on the U.K. stock market than there were a decade ago, reflecting both a long-term downward trend in IPOs and some high-profile delistings. This trend is not confined to one industry, with tech and construction firms among those to either opt for listings overseas or go private.
The alarming state of affairs has even prompted the CEO of Shell—which tops the Fortune 500 Europe and is overwhelmingly the FTSE 100’s biggest company—to consider packing up for the U.S.
Yet London Stock Exchange’s CEO Julia Hoggett seems optimistic. She argued that “there’s no sense of panic” as the country is “already punching above its weight,” in comments made to the BBC on Thursday.
Hoggett said that the runaway growth of U.S. tech giants, including Google and Apple (which, on its own, is worth more than the top 100 London-listed companies), skew the perception of London’s bourse in comparison.
“When you strip them out and look at the actual companies of similar sizes in the U.S. to the sort of company size that we have in the U.K. They haven’t really been out-performing,” Hoggett said, adding that because London has “all the fundamentals,” she feels optimistic.
Does she have a point?
London does have the fundamentals for a major exchange, not least the powerful ecosystem of investment banks, lawyers and institutional investors that make the City one of the world’s most important financial centers.
But given the recent slew of bad news, it’s hard to see the bright side when it comes to the public markets. Take Cambridge-based chipmaker Arm, for example, which launched 2023’s biggest IPO in September. Although the company is British, it opted to list in New York, earning a valuation of over $54 billion.
Flutter Entertainment, an Irish sports betting company with a £29.7 billion ($37.6 billion) market cap, also recently voted to move its primary listing to the U.S. by the end of this month, while Germany-based TUI is soon to delist from London in favor of Frankfurt.
Although there has been some good news—this week, computer maker Raspberry Pi said it’s planning to list in the U.K.—the fact remains that flotations are thin on the ground, with the number of applicants hitting a six-year low in 2023.
It has even jeopardized London’s once unassailable standing among its European rivals—last year, Paris briefly became Europe’s largest stock market.
Indeed, in 2023 the LSE only accounted for a meager 2% of the $12 billion in funding raised globally through IPOs, Bloomberg reported, while other European markets have picked up after a slump in listing activity.
Given the U.K. economy accounts for approximately 3% of global GDP, that figure no longer suggests it’s punching above its weight.
Why is it happening?
The key concerns with the British markets include a relatively complex listing regime, strict governance requirements, lackluster performance by the newer stock market entrants (like Dr. Martens), and the potential for higher valuations in the U.S., particularly for technology companies.
But it’s also dealing with a longer-term trend of companies going private—as cybersecurity firm Darktrace has announced it will—which is an issue that isn’t confined to the U.K. As JP Morgan CEO Jamie Dimon pointed out in a letter to shareholders last month, public companies are playing a more limited role in the financial system generally—while publicly traded stocks in the U.S. have dropped since the turn of the century, the number of private equity-back firms has risen significantly.
Hoggett herself raised another concern: the U.K.’s ability to attract top talent for its management due to poorer pay packages for London-listed companies compared with their American peers.
“We’ve hamstrung ourselves from creating a level playing field with which to compete with the rest of the world,” she said in a Bloomberg podcast interview last year.
An LSE Group spokesperson told Fortune that the health of the U.K.’s capital markets wasn’t only linked to the number of IPOs. The amount of equity capital raised in London was up over 38% year-over-year—more than the next two biggest European exchanges combined.
“We are encouraged by the pipeline of companies looking to IPO and anticipate more activity following the implementation of the new listing rules in the second half of 2024,” the spokesperson said.
What’s being done?
Since London’s problematic slide has been ongoing for a while, City and government officials have been trying to address the problem.
As LSE’s spokesperson alluded, the Financial Conduct Authority is crafting more simplified listing rules that will lower the barrier to entry for companies looking to go public in the U.K. The proposal includes having a single listing category and relaxing the eligibility requirements for IPOs.
Chancellor Jeremy Hunt has been exploring avenues to invest pension funds in the U.K. and plans to meet with business executives on Thursday to find ways to attract more listings. Hoggett has said this would be a key reform, keeping money within the country.
At a time when the British economy is growing and picking itself up from last year’s economic woes, such new reforms could yet be a game-changer—if and when implemented.
