Should investors ever show loyalty to ’home-grown’ stocks and shares?
Evidence for flying the flag is sadly scant – the London Stock Exchange (LSE) is haemorrhaging companies while new flotations have been drying up.
Even pension funds have just four per cent of their assets in UK shares compared to 50% in 1990.
Odd then on the face of it that the FTSE 100 should crash through the 8,000 barrier in recent weeks, setting new records in the process.
However, the rise followed a long period of underperformance – left in the doldrums by New York.
After a poor 2023 in which the FTSE was ahead just 3.8 per cent, held back by political instability, a lack of growth, plus high inflation, the surge, on hopes for interest rate cuts and signs of an improving economy, still leaves it lagging European peers.
So, where has it all gone wrong?
The woes are put down to the FTSE’s low exposure to the tech sector, with some critics branding us a dinosaur economy.
Alan Miller of SCM Direct, told the Evening Standard: “There are some underlying fundamental reasons for the poor performance of UK equities, the over-representation in the ‘old’ economy rather than tech, together with the ongoing uncertainties surrounding Brexit. Political instability, including changes in leadership and policy direction, has also contributed to a lack of confidence.
“The substantial outflows from UK equities present serious issues for the long-term health of the economy. It means that effectively the cost of capital for UK companies is higher as those seeking capital from the UK market must pay a higher price to attract demand and means that more and more UK companies will be prone to foreign takeovers which normally means less UK employment/investment.”
Travel giant Tui ditched its London listing to concentrate on Germany while Dublin-based betting group Flutter, owner of Paddy Power and Betfair, moved its primary listing to New York. Cambridge-based chip designer Arm Holdings, once a stalwart of the FTSE prior to its takeover by Japan’s SoftBank in 2016, returned to the public markets late last year … but to the Nasdaq exchange in America rather than its former home in the Square Mile.
Companies that have been acquired include electrical retailers Currys, animal drugs company Dechra, telecoms testing firm Spirent, and payment solutions company Network International.
Perhaps even more worrying is the picture on flotations.
An Evening Standard study found that Investors who bought into every London flotation of the last five years had lost almost £10 billion as a result.
Indeed, the UK IPO (initial public offerings) market hit an 11-year low in the third quarter of 2023, only five IPOs conducted, raising £359.8 million, representing a 36% decrease in proceeds compared with the same period in 2022.
Just 56 companies made applications to float on the main market in 2023, a 50% drop on previous years. Of these, just 30 were given the green light by the Financial Conduct Authority.
The newspaper noted: “Since the end of 2018 there have been 216 IPOs in London, raising £25.8 billion in all. Those shares are now worth £9.6 billion less than at flotation, with major flops including Deliveroo, Dr Martens and Trainline.
“The average loss per pound invested was 28p. Every single one of the ten largest IPOs in the UK lost investors’ money.”
Sober statistics indeed.
The Government and the LSE have been trying to loosen listing rules in order to attract fresh floats, but the tide is yet to turn.
For those investors who do value a vibrant London market it is all a bitter pill to swallow.