[LONDON] The City of London – the financial district that’s home to both the London Stock Exchange (LSE) and the Bank of England – has certainly seen much better days.
“The City has lost its mojo”, said The Sunday Times newspaper in a recent editorial titled “Sort out the Square Mile and revive the whole country”, referring to the other popular name for the financial centre.
“The conduit for local and foreign investment urgently needs to rejuvenate to boost the UK economy,” the editorial went on to say.
Going by the number of listed companies on the UK stock market these days, that assessment seems to be not too far off the mark.
There were some 3,250 companies listed in the UK in 2007, just before the Global Financial Crisis. This number is now down to below 1,800. For the whole of 2024, 88 companies delisted or moved their primary listing from London, with only 19 new ones coming on board.
According to data compiled by Bloomberg, fundraising from London’s initial public offerings (IPOs) fell by about 9 per cent in 2024 to US$1 billion. This sent the UK four rungs down to 20th place in a global ranking of IPO venues, well below the likes of New York and Singapore and even lower than Oman.
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Andrea Rossi, the chief executive officer of UK fund manager M&G, said that London has been overtaken by traditional competitors such as New York and exchanges in Europe.
“Countries with markets a fraction of the LSE’s size are leapfrogging us,” he said. “Twenty years ago, British pension funds held more than half of their assets in British shares. Today it’s between 4 and 6 per cent.”
Retail investors, meanwhile, have pulled out about £25 billion (S$42.1 billion) from UK equity funds since May 2021.
Dealers said that excess regulation, government policy failures, the fallout of Brexit, liquidity issues and booming markets in the US and elsewhere have caused funds and other investors to seek global opportunities.
The pressing task at hand is to figure out how to draw greater investment into London’s financial sector, which remians a vital part of the British economy.
Finance and insurance accounts for 9 per cent of GDP, and as much as 12 per cent if lawyers accountants and other professionals are included. National statistics also show that the City of London employs 678,000 dealers, analysts and other staff.
Despite all the gloom, Rossi is one who believes that there is cause for some optimism in the months ahead.
For a start, Chancellor of the Exchequer Rachel Reeves is seeking new ways to overcome the City’s difficulties.
In a recent speech at the Lord Mayor’s Mansion House, she promised that the government would “fire up” financial services in order to boost growth. The government intends to rein back several post-crisis regulations and create pension mega-funds to drive more investment.
The Financial Conduct Authority (FCA), a financial regulatory body in the UK, has “simplified and streamlined” listings rules to encourage more IPOs in the City. On its part, the LSE has announced that there will be a secondary market for private equity deals in May.
The FCA’s chief operating officer Emily Shepperd said the regulator’s five-year strategy aims to achieve better efficiency, tackle financial crime, build consumer resilience, and support economic growth and innovation.
Rossi, who noted that more of M&G’s international and domestic clients are starting to put more money into the UK again, outlined a three-point plan to rejuvenate the stock market.
First is to provide a tax incentive for UK savers to support homegrown companies. Pensions have tax advantages, but they could also be linked to the choice of British instead of foreign companies, he said.
Second, UK institutions will fund more UK companies if new listings and rights issues are simplified and transparent. UK institutional support will give companies confidence if they see deep-pocketed investors supporting their growth ambitions, said Rossi.
And third, it is essential to remove or reduce stamp duty on shares, he said, noting that the US, Germany and China do not impose a tax of this kind.
“We need to take a hard look at whether it makes economic sense to tax British investors. They can choose a foreign market that excludes a tax charge,” said Rossi.
