Britain’s sluggish stockmarket | The Economist
IF BRITAIN’S TWO truly world-beating exports are entertainment and finance, 2005 was a big year. Its bestselling album was “X&Y” by Coldplay, a British rock band. “Harry Potter and the Half-Blood Prince” sold more copies in its first 24 hours than any novel before it. “Peppa Pig”, a children’s television programme set to become so popular that American parents would complain it was giving their children British accents, made its transatlantic debut.
London’s financial district, too, seemed on top of the world. Gone was the post-war backwater that scratched out its living financing the remnants of the imperial commodities trade. Half a century of financial innovation, freer trade and deregulation had lured foreign banks to the Square Mile and then cracked it open to international capital. As the birthplace of the Eurobond market, which allowed firms to borrow American dollars outside America, London had long been an international hub for raising debt and trading foreign currencies. Now it was becoming the place to raise equity capital as well. A fifth of all companies globally that went public via an initial public offering (IPO) in 2005 chose to do so on the London Stock Exchange (LSE). Within a few years, analysts who worried that America was suffering from a dearth of listings would be pointing to Britain as an example of how to do things right.
A shame, then, that those heady years in the run-up to the global financial crisis set a high-water mark for Britain’s equity market. A decade and a half later, any pretensions the City once had as the world’s stock exchange have been dashed. Its share of global IPOs has dropped by a factor of five, to 4%, and the number of companies listed on it has fallen by 40% since the peak in 2007. As a share of the global equity market, and even of the sclerotic European one, the value of Britain’s has dropped steadily (see chart 1).
As London’s share of IPOs has dwindled, so too has the prestige of the few it still hosts. Its largest, which valued Glencore, a mining giant, at $60bn, is now a decade in the past. Today, similarly sized debuts are commonplace in New York: so far, 2021 has seen both Coinbase and Coupang soar to over $100bn on their first trading days. For the City, by contrast, Deliveroo ($10.5bn) and Wise ($11bn) now count as big flotations.
The market that remains is plagued by underperformance. A dollar invested across the world’s stockmarket in 2005 would have been worth $3.07 by the end of 2020 (see chart 2). Invested in Britain’s, it would have been worth $1.55. Much of that is caused by Brexit-induced political and currency risk. Analysts at Jupiter, a fund manager, reckon that British equities are priced at a 40% discount relative to dividends, earnings and growth prospects, compared with valuations before the 2016 Brexit referendum. Add in…