UK stocks are currently experiencing the largest discount ever recorded, raising concerns about a potential increase in British companies migrating to Wall Street.
According to data from UK investment bank Panmure Gordon, the British equity market is significantly undervalued compared to global markets, with a minor reversal in 2021/22.
This discount has led to higher costs for companies looking to raise capital through London’s stock market, says Simon French, the chief economist and head of research at Panmure Gordon.
In a tweet, French states, “It’s remarkable to think that UK equities traded at a valuation premium to the rest of the world before the Brexit vote.”
Since the UK’s vote to leave the European Union in 2016, UK stock market returns have fallen behind their international counterparts, making it more challenging to attract premium listings.
These statistics raise concerns about more British companies following the footsteps of CRH, Paddy Power-owner Flutter, and plumbing giant Ferguson in moving their primary listings from London to New York, where valuations are typically higher.
Arm, the British chip designer, is also seeking a record valuation of $70bn (£55bn) through its float in New York, dealing a further blow to London’s stock market. Arm’s previous membership in the FTSE 100 ended with its acquisition by Softbank for £24bn in 2016.
The decline in listings on the London Stock Exchange during the first half of 2023, despite government efforts to rejuvenate the market, is concerning. EY reports a nearly one-third drop in new listings between January and June compared to the same period last year, with funds raised remaining flat at £593m.
WE Soda, the world’s largest natural soda-ash producer, recently canceled its planned £7.5bn listing in the UK, citing “extreme investor caution in London” as the reason. Scott McCubbin, head of initial public offerings at EY, comments on the challenges faced by businesses looking to list in the UK due to macroeconomic and geopolitical pressures.
To revitalize the beleaguered market, the UK’s financial regulator is considering a significant overhaul of the City’s listing rules. This includes replacing the current premium and standard system with a “single segment” regime that has less burdensome requirements, marking one of the most significant reforms to London’s stock exchange since the 1980s.
However, these proposals have received criticism from pension funds, expressing concerns about reduced shareholder protections and potential harm to the UK’s reputation. The FTSE 100 has also been impacted by economic uncertainty, as the Bank of England raises interest rates to combat inflation.
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