What’s in the pipeline?

• Shein confidentially filed papers with UK authorities in June for a potential London initial public offering, according to people familiar with the matter. Analysts said prospects for such a listing were uncertain, and it would be controversial given concerns over the ethics and sustainability of Shein’s business model. The company, which could have a valuation of about £50 billion ($64 billion), was founded in China but is based in Singapore.
• French media and communications group Vivendi SE plans to list its Canal+ broadcasting business in London as part of a breakup of the company.
• Amplats has said it’s evaluating a secondary UK listing to follow its spinoff from Anglo American Plc.
• Billionaire Victor Li’s CK Infrastructure is considering a second listing on an overseas exchange such as London.
• Local firms such as Lloyd’s of London insurer Canopius Group have begun to line up IPOs in the UK capital for 2025.

What’s gone wrong for the London stock market?

London’s reputation as a listing destination for international companies has suffered as several firms — including CRH Plc and Flutter Entertainment Plc — chose to switch their main share listings to New York. Even London’s biggest inter-dealer broker, TP ICAP Group Plc, is looking to the US as it considers an IPO of a lucrative data business. An especially bitter blow was London’s failure to lure one of the most promising British technology companies — Cambridge, England-based chip designer Arm Holdings Plc. Despite lobbying by government ministers and an offer to relax UK listing rules, Arm’s Japanese parent company SoftBank Group Corp. chose New York for its return to public markets. 

How bad is the London stock market downturn?

Activity has shrunk dramatically from a peak before the financial crisis, with average daily traded volume on the FTSE All-Share Index falling to about £3.6 billion ($4.6 billion) in July from almost £14 billion in the same month of 2007. Investors tend to pay less for illiquid stocks as they risk a bigger loss when they come to sell. The MSCI UK share index was trading at a 42% discount to its US counterpart as of early August, based on forward price-to-earnings ratios. To be sure, the decline in trading activity has been Europe-wide and the London Stock Exchange remains Europe’s busiest in terms of the amount of money changing hands each day. 

Have other firms left London?

New York’s deeper pool of investors has prompted a number of companies to seek listings across the Atlantic. At the same time, fewer firms are attempting IPOs in London. While that reflects a broader slowdown in the global IPO market, investors were also deterred by the poor performance of some high-profile listings in 2021, including Deliveroo Plc and Dr Martens Plc. Among the London-listed companies that have been looking overseas: 

• In February, British drugmaker Indivior Plc said it could move its primary listing to the US.
• The same month, TUI AG shareholders voted to delist from the LSE and move trading primarily to Germany.
• A $20 billion merger in the packaging industry created the prospect of London losing another top company, Smurfit Kappa Group Plc, from its benchmark index.
• In 2022, miner BHP Group Ltd. switched its main listing to Sydney, ending a dual arrangement with London that had dated back to the company’s creation in a merger 20 years earlier.
• Also in 2022, Abcam Plc, a Cambridge-based biotechnology company worth about $3.3 billion, moved its primary listing from London to the US Nasdaq.
• In 2021, plumbing and heating products supplier Ferguson Plc switched to the US after trading as a FTSE 100 company for several years.

Where does the London stock market rank now?

The total capitalization of London-listed equities fell from a high of $4.3 trillion in 2007 to about $3.2 trillion in June 2024, according to data compiled by Bloomberg. Over the same period, the value of US stocks almost trebled to $57 trillion. London is only the sixth-biggest globally now, trailing the US, China, Japan, India and Hong Kong and similar in size to Paris, a powerful reality check for an institution whose history stretches back more than 200 years. The decline began well before Brexit and the coronavirus pandemic, as a deeper productivity crisis pushed Britain’s economic performance into the slow lane in relation to other Group of Seven developed nations. 

What else is to blame?  

In the early 2000s, the UK government introduced rules forcing retirement fund managers to be more open about their investments and how they planned to meet future pension obligations. One result was a shift out of riskier equities — the pension industry’s preferred investment until that point — and into safer government bonds. The trend was reinforced over the following decade as millions of workers holding so-called defined-benefit pension plans retired. Pension managers doubled down on government debt at the expense of shares so they could better match their long-term liabilities to those retirees. What’s more, what little equity allocation the funds retained was put increasingly into stocks in other markets as they diversified their holdings. UK pension funds held just 1.6% of UK-listed stocks in 2022, down from about 32% in 1992, according to data from the Office for National Statistics.

Is Brexit a factor? 

Due to Brexit, some private trading forums, known as dark pools, and secondary-listing exchanges moved business to Amsterdam from London. Amsterdam has also become more competitive versus London and New York since Brexit. Still, London took a 25% share of the European IPO market in 2021 — the largest of any city — before a global downturn struck in 2022. 

What’s the UK doing about it?

UK regulators in July announced an overhaul of their rules for companies looking to make their public debut in London. The new regulations allow companies to carry out more activities without putting them to a shareholder vote, according to the Financial Conduct Authority. They also make it easier for companies to have two classes of shares, a structure that’s often favored by entrepreneurs or early-stage investors who want to have a significant role in businesses even after they have gone public. Deutsche Bank said the changes would increase the risks from buying stocks and lead to more of a “buyer beware” culture in equity investing in the UK. 

What are the government’s plans? 

Prime Minister Keir Starmer’s Labour Party, which won power in July, pledged in its manifesto to “act to increase investment from pension funds in UK markets.” It outlined plans to promote private investment through a £7.3 billion ($9.4 billion) national wealth fund and said it would “consider what further steps are needed to improve pension outcomes and increase investment in UK markets.” Chancellor of the Exchequer Rachel Reeves has said she wants British pension funds to learn from the Canadian model, where larger pension plans mean they can invest far more in productive infrastructure assets than those in the UK. That may affect how funds allocate resources.