11 July 2024
If you are covering the announcement of the FCA’s overhaul of listing rules to stimulate growth of UK stock markets, please find below a comment from Chris Beckett, head of equity research at Quilter Cheviot:
“The FCA’s overhauling of listing rules in the UK is very admirable and it is pleasing to see action being taken to address the de-equitisation of a key financial market. London has been a critical hub for financial services and having a healthy stock exchange is important for its reputation, particularly with a new government and the UK no longer part of the European Union. However, using the listing rules as a reason for the London market’s struggles is a bit of a red herring. The main reason for the gloomy clouds over the City is the makeup of the main indices. London is home to large, legacy industry companies, such as miners, oil and gas and financials, which have been out of favour in the past decade and show no real signs of becoming loved once more.
“Clearly the FCA and government wants to attract new and exciting businesses to help counteract this problem, but there are some challenges to this approach which will be very difficult to get around. Firstly, growth investors tend not to invest in the UK, for the reasons listed above. They tend to look to the US for these companies and as such if a business wants to achieve an attractive valuation, it too will go to America. Furthermore, most institutional and retail investors care very little about where the company they are buying is listed. We live in a 24/7 digital age now where you can buy companies listed in London, New York, Tokyo, Shanghai or Frankfurt at the touch of a button. Many of the companies in the FTSE 100 are global in nature too, so will naturally look to overseas markets if that is a better fit for them.
“Finally, while these reforms are a good, albeit limited, first step, we need to be careful not to lower standards too much. Encouraging businesses to list here is beneficial, and we hope these reforms will help, despite reservations, However, attracting high quality companies requires maintaining robust governance standards. Given the FCA’s mandate and actions to date, it fully understands the need to protect those standards.”
