There were some rare pieces of good news for London’s moribund new issues market last week.
First, the Chancellor, Rachel Reeves, was reported to be considering exempting stamp duty for newly-listed company shares in next month’s Budget. If that were to happen, it would indeed be welcome.
Second, the drought in new issues was broken by Beauty Tech Group, a Cheshire-based enterprise that makes at-home cosmetic devices used by the likes of Kim Kardashian, with a stock market debut that valued the company at more than £300m.
This was also welcome, the more so as the company’s founder and chief executive, Lawrence Newman, unashamedly cited patriotic reasons for floating in the UK rather than elsewhere. We need more entrepreneurs like him.
Sadly, that’s where the good news ends, for it says something about the supposed attractions of London as a place for share listings that this was the biggest new issue so far this year.
You’ve got to start somewhere, and a £300m valuation is certainly not to be sneezed at, but compared to what’s happening elsewhere in the world, this is a tiddler which is going to make little or no difference to the underlying trend.
Like the UK economy as a whole, this trend represents a steady relative decline. Data collated by Bloomberg shows that so far this year, the London Stock Exchange (LSE) has slipped out of the top 20 markets for new listings for the first time ever.
Even Mexico and Qatar are now doing better than the LSE. Other comparative measures of the LSE’s performance appear even more stark. In terms of the amount raised from new listings, the LSE has plunged nearly 70pc to the smallest haul in 35 years.
It would be nice to think that with the right regulatory and tax environment, this dire state of affairs could be reversed.
Hope springs eternal, and many still dream of a “wider still and wider” return to the glory days of old. Alas, it’s largely delusional.
You have to go all the way back to the pre-First World War age, when London was at the centre of a vast empire covering a quarter of the world’s population, to see the LSE at the height of its powers.
Like some colossus, it bestrode the world, seemingly unstoppable in its power and reach.
However, times have changed, and with the empire now gone, the LSE struggles to maintain its position in a world that is increasingly competitive for international capital and hostile to the UK.
The comedown is proving a difficult one. Britain still has a long way to go in coming to terms with this wrenching change in its circumstances, now a mere bit player at best, rather than the powerhouse it once was.
Share trading is, of course, a relatively small part of today’s London Stock Exchange Group; years of diversification have made the company into a much more broadly based provider of financial data and infrastructure.
The stock market is also a virtual irrelevance to the wider City, which encompasses a multitude of financial service industries, ranging from insurance to banking and from foreign exchange to derivatives and clearing.
Even so, the exchange’s fortunes still count for something, and as powerfully symbolic of Britain’s diminishing status in the world, they do not make for comfortable viewing.
Once the natural home for Britain’s available pool of capital, and that of its empire, the LSE is these days hemmed in by competition. The options are almost limitless, and sadly, the choice when exercised tends not to be the LSE. Capital is, instead, increasingly flowing into overseas markets and private equity.
Reversing this trend is not simply a matter of tweaking the regulations or, indeed, the tax treatment of equity trading.
Britain’s cultural aversion to high levels of executive pay and the continued obsession with non-commercial, environmental, social and governance (ESG) issues plainly don’t help.
It would, for instance, be hard to imagine UK investors tolerating the $1tn (£740bn) in performance-related pay that the Tesla board has just approved for Elon Musk in the US. The ESG brigade would scream blue murder.
Musk may be an extreme example, but the truth is that executive pay in the FTSE 100 lags significantly behind what is available elsewhere in the world, as well as in private equity.
Also true is that the UK’s listing rules remain demanding by international standards, even after attempts to loosen them by removing the distinction between premium and standard listings.
But as I say, this is not the nub of the problem. Rather, it is that capital is increasingly bypassing the LSE to chase the supposedly higher returns of private equity and the greater liquidity – and therefore enhanced valuations – of Wall Street and Asia.
These are far from healthy trends. The great advantage of the publicly listed UK corporation is that it ensures a degree of transparency and accountability that doesn’t exist in private equity and is generally deficient in the passive investment strategies that drive investment in overseas markets.
Rewind thirty years to the 1990s, and Britain’s big occupational pension funds were still the mainstay of the London stock market.
This, in turn, was underpinned by the so-called “cult of equity”, a way of thinking about equity investment pioneered in the UK by George Ross Goobey, head of the Imperial Tobacco pension fund. Believing, rightly, that equities always outperform the alternatives over time, pension fund trustees poured their money into the London stock market.
However, the abolition of the tax credit on dividends and other catastrophic public policy errors soon followed.
The big pension funds closed their doors to new members and began capping their liabilities by rotating out of UK equities into government bonds and other supposedly risk-free assets.
Globalisation was the final coup de grâce; it was hard to justify being overweight in UK equities when they accounted for an ever-diminishing share of the global total.
Other countries have been more successful at ensuring that domestic savings flow into homegrown equities, but it’s a hard sell when the returns elsewhere look so much higher.
It’s also a vicious circle. Declining UK stock market liquidity makes it more likely that successful UK companies list overseas, where the valuations are higher. Squeezed liquidity thereby begets still scarcer liquidity.
No doubt there will be occasional reprieves; once the artificial intelligence bubble goes pop, as inevitably it will, the UK stock might seem relatively attractive once more, if only because it has hardly any exposure to AI.
But they will be temporary; the overriding trajectory is one of decline, and it’s hard to see what can be done to reverse it.
A useful starting place might nonetheless be a more business-friendly environment, with appropriately pro-growth regulation and taxation to match.
For now, it seems like a lost cause. But get these things right, and more companies like Beauty Tech would soon be beating a path to the LSE’s door.