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When the stock market is shrinking, delisting hurts morale. Just Eat Takeaway announced on Wednesday that it would scrap its secondary listing in London. It’s a smart move for loss-making companies that need to cut costs. However, it has once again highlighted the challenges facing the London market, which has seen a number of defectors.
Still, the pessimism in the London market appears to have been overdone. The IPO pipeline is improving, despite 14 IPOs raising just £750m so far this year. French media conglomerate Vivendi’s planned €6-8 billion IPO for TV business Canal Plus is expected to be the biggest London listing since 2022, but this time it will be followed by Chinese fast fashion group Shein’s IPO. A listing plan could overturn that. The long-awaited fintech listings may start popping up.
The London Stock Exchange hopes new listing rules will make the UK even more attractive. This gives management the freedom to make decisions without shareholder votes and facilitates the adoption of dual class share structures. The exchange may also discuss the disadvantages faced by smaller companies that switch listings to the United States. A survey of 20 companies listed in the United States since 2014 revealed that more than one-third have been delisted.
It is true that the US market is more liquid. Nevertheless, the gap is not as large as it seems at first glance. Excluding the 79 mega-cap stocks that account for more than half of U.S. sales, the average daily trading value of large-cap stocks is only 1.3 times that of London and other European markets, according to Euronext.
Even more troubling is that the valuation gap between the UK and US markets is at an all-time high. The FTSE 100’s forward price/earnings ratio of 12 times is about half that of the S&P 500. Most of this difference disappears if you exclude the highly rated US tech giants.
Despite this, Charles Hall of Peel Hunt believes the London market is undervalued by 20%. Restless companies, such as market giant Shell, may reach similar conclusions.
Those who believe the UK market is undervalued want to encourage more domestic investment in UK stocks. The share of domestic stocks in UK pension assets has fallen sharply to 4.4%, well below the global average of 10.1%. The government has not ruled out forcing pension schemes to invest more in UK assets. That would be a mistake and would likely lead to an ugly fight with the trustee.
But pension funds have a role to play. They could do more to address the lack of domestic capital to help start-ups scale up. Building a pipeline of new companies to replace those that exit is the best path to a healthy stock market.
vanessa.holder@ft.com
Video: How to restart UK capital markets | FT Films
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