ASK BRITONS what actually goes on in the City of London and you’ll be met with a blank stare. Trading the yen and the yuan, structuring derivatives and providing the world’s financial plumbing are all money-spinners, but they barely register in the public imagination. The exception is the stockmarket. Daily news bulletins report trading on the FTSE 100 index of leading London shares. Booms and busts are charted by its gyrations. The London Stock Exchange (LSE) is the stamping-ground of giant multinationals, where city-slickers and corporate fat-cats thrash out huge deals to buy and sell the world’s companies.
Or at least it used to be. London’s high-flying stockmarket has spent the past decade tumbling back to earth. In 2006 the companies with shares listed in London were worth 10.4% of the global equity market. Today, that figure is 3.6%. London has lagged behind even the laggards: its share of Europe’s total market value has declined from 36% to 22% over the same period. The denizens of the LSE that are left look geriatric. Less than one-fiftieth of the FTSE 100’s value comes from tech companies, compared with almost 40% of the S&P 500 index of American firms. James Anderson of Baillie Gifford, one of the most successful global investors of the era, recently told the Financial Times that Britain has a 19th-century stockmarket. He is right.
One reason for Britain’s abysmal bourse is the underperformance of large British firms. Too many, from BP and GSK to HSBC and Tesco (average age 169), have dropped from the top tier of their industries owing to the chronic British disease of poor management. That has dragged down returns and made some firms vulnerable to takeovers. The entire asset-management industry, which has the job of supervising other firms, is badly run. Britain’s most valuable fund manager is now worth less than 10% of America’s largest. British pension schemes have spent years loading up on bonds and selling shares in a myopic quest to eliminate risk. They now have too little exposure to economic growth or wealth-creation.
The City has also suffered as global firms with international capital-raising options have drifted off. London’s revival after the “Big Bang”—reforms in 1986 that deregulated trading—relied in part on the stock exchange becoming a venue for mobile global businesses. Recent weeks have seen Prudential, an insurance giant, choose a share offering in Hong Kong and BHP, one of the largest London-listed companies, announce plans to have its sole primary listing in Australia. London’s aspirations to be a hub for European businesses have been dealt a blow by Brexit.
The City’s final weakness is a dearth of startups that choose to list in London. In 2005 London hosted one-fifth of the world’s initial public offerings (IPOs); today, it hosts one-twenty-fifth. A stock exchange that continually fails to attract exciting new firms will come to resemble a museum.
It is reasonable to…
Read More: How to revive Britain’s stockmarket