City thinking, local knowledge

Is the UK Stock Market in Crisis?

By Questa Chartered

Is the UK stock market really in crisis? While headlines frequently paint a gloomy picture, the reality is nuanced. Let’s take a closer look at the current state of the UK stock market and the factors influencing its trajectory.

Bright Spots in a Challenging UK Stock Market Landscape

Recent announcements by companies like Cambridge-based tech firm Raspberry Pi, planning to list on the London stock market with a potential valuation of £500 million, offer a glimmer of hope. Similarly, reports that Chinese fast fashion brand Shein is considering floating on the London Stock Exchange (LSE) instead of New York highlight London’s appeal despite recent challenges.

The Post-Brexit Blues

However, the broader narrative around the UK market post-Brexit is less rosy. Bloomberg has reported a 25% decline in the number of London-listed companies over the past decade. High-profile decisions like chip designer Arm Holdings choosing the US over the UK for its market re-entry, which saw its value soar to £48.3 billion, underscore the competitive pressures London faces from global financial hubs.

Flutter, the owner of gambling giant Paddy Power, is set to move to New York this summer. Even Shell, one of the UK’s largest companies, is contemplating a shift across the Atlantic. These moves raise concerns about London’s ability to retain its status as a leading global financial centre.

Corporate Criticism and Comparative Praise

Critiques from major corporations have added to the sense of uncertainty. Microsoft’s President has publicly praised the European Union as a more business-friendly environment than the UK. Shell’s Chief Executive, Wael Sawan, has expressed similar sentiments, citing the warm reception his team received from the New York Stock Exchange.

Government and Regulatory Responses

In response, the UK government and financial regulators are taking action. Chancellor Jeremy Hunt recently convened finance leaders to brainstorm ways to make the UK market more attractive. The Financial Conduct Authority (FCA) has also unveiled plans to “reform and streamline” the UK’s listing rules to draw in more companies and enhance competition.

Julia Hoggett, Chief Executive of the LSE, has refuted claims of a crisis, asserting that the UK market is “punching above its weight” with a healthy pipeline of companies preparing to list. A Treasury spokesperson echoed this sentiment, emphasizing the UK’s strong investment climate and ongoing capital market reforms aimed at boosting competitiveness.

Room for Improvement

Despite these reassurances, Hoggett acknowledges the need for further reforms, particularly in directing more domestic pension money into the UK economy. This is an area where the UK lags behind other developed nations with robust capital markets.

The Domino Effect of Major Departures

The potential departure of major companies like Shell could have a domino effect, leading other giants such as BP and major mining firms to follow suit. Charles Hall of investment bank Peel Hunt warns that this could shrink the UK market and deter global asset managers from investing in the country, with significant implications for the broader economy.

The UK Stock Market and Looking Ahead

While the UK stock market faces substantial challenges, it is not in freefall. Efforts by the government and the FCA to reform the listing regime and boost competitiveness are steps in the right direction. However, retaining and attracting major companies will be crucial to ensuring the market’s long-term health.

As investors, it’s important to stay informed and proactive. We will continue to monitor developments closely, particularly the FCA’s new listing rules and their potential impact on your investments. If you have any questions about managing your portfolio in this evolving landscape, please don’t hesitate to get in touch.

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