2 May 2024

How to save the London Stock Exchange

By Yerbol Orynbayev

Some of the largest and most name-checked companies across the globe call London their home: BP, HSBC, GSK and Rio Tinto are only just a few of these titans. They’re mainstays of the FTSE 100 and bastions of enterprise – they make the London Stock Exchange what it is today. 

Unfortunately, their eyes are being turned. And so are the UK’s most promising up-and-comers. The London Stock Exchange might be in its final act – intervention is needed.

This decline has been happening right in front of our eyes. The number of London-listed companies has shrunk by 25% in the last decade – who can forget the panic caused by British chip manufacturer Arm’s decision to opt for New York last year? Worryingly, FTSE giants like Shell are considering following its hop across the pond, too. London is losing its clout.

However, current efforts to revitalise the stock exchange are too little too late. In a bid to boost IPOs, the Financial Conduct Authority has finally conceded on its onerous listing rules, recently announcing a new, simple set of ‘streamlined eligibility and ongoing requirements’. From 11 Downing Street, Chancellor Jeremy Hunt recently revealed plans for a British ISA and even considered requiring pension funds to disclose their allocations to UK asset classes.

These are just reactive. They miss the point and don’t address the heart of the issue.

If you want to supercharge the London Stock Exchange, you have to look at its root – the UK’s business community. You need to establish core incentives that appeal to management teams and convince them to stay in London. 

So, as we gear up towards the general election, measures need to be thought of and implemented now. 

That’s why I’m calling for tax incentives for pre-IPO enterprises. They will squash any sentiments to relocate from shareholders and parent companies alike and help drive the culture of domestic listing that’s been declining since the 1980s. The London Stock Exchange could see a dramatic revival.

I do understand, though, that the London Stock Exchange will also have to change – and more specifically, shift its undervaluation problem. Recent bidding wars have shown share prices of London-listed firms are critically low: in particular, logistics company Wincanton has been offered bids 104% more than its old share price of 297p. Even directors of the engineering firm TClarke, which recently exited the stock exchange with a £90.6m acquisition, have rebuked London for undervaluing the business.

It’s a two-way street. If the LSEG wants a boost, it has to right its wrongs. After all, it would benefit the group, too: their stock price has been in steady decline over the last month, and they’ll be looking at any and all ways to ramp it back up. It’s a no-brainer.

But that’s just in the domestic market – tax incentives will ensure homegrown hopefuls stay within our shores and decide to call London their home. But how can we reinstate the capital’s status in the global market?

It goes without saying that the UK has lost its title as a global investment hub. Direct Foreign Investment (FDI) inflows have collapsed: 2022’s figures of $14.1bn – or approximately £11.3bn – are only less than a fifth of the average sum in the three years before the Covid pandemic.

The solution is pretty simple: just as its companies want to cross the Atlantic, the UK should take a leaf out of its US neighbours’ book. Constant CMA probes and red tape – the Activision Blizzard merger debacle is case in point – and changes to the skilled worker visa have made the UK thoroughly unattractive, and especially for big tech firms. 

Pro-market and competitive labour market regulation – a distinct move away from its current hesitancy and mistakes – will encourage global enterprises to settle on the UK’s shores. The UK’s ambitions to become a global tech superpower and, indeed, a global business hub, are admirable. It’s time it walks the walk – and undergoes a wholesale regulatory makeover to achieve its goals.

Stock exchanges are vital for creating a powerful, thriving, and healthy business ecosystem. And while the Copenhagen stock exchange suddenly caught fire, London has been slowly burning. 

So, whomever opens the door of Number 11 following the general election, the onus will be on them to revitalise London’s market. The UK’s economic growth and, of course, national ambitions depend on it.

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Yerbol Orynbayev is an independent financial services consultant and former Deputy Prime Minister of Kazakhstan, and is now based in Washington DC.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.