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Fears that a rush of listed companies would abandon London for New York turned out to be unfounded. However, there is no doubt that it is having an impact little by little, and if left unchecked, it could become a troubling trend.
Machine rental company Ashteed became the latest FTSE 100 member to announce relocation plans this month, following gambling group Flutter and building materials manufacturer CRH. Adding in delistings, the total number of exits from the London Stock Exchange this year is close to 90, making it the worst exit since the financial crisis.
In some ways, the battle to keep London listed is more emotional than factual. Many of the popular arguments for leaving the EU, which have gained momentum since the 2016 Brexit vote, are weaker than they seem.
First, leaving London is not a shortcut to skyrocketing stock prices. LSEG CEO David Schwimmer says the idea that U.S. companies are overvalued is a “myth,” as analysis by UBS and the Financial Times found similar results. . A large fish in a small pond can increase its rarity value.
Second, raising the bar isn’t the only way to lure deep-pocketed U.S. investors. Certainly, inclusion in a widely tracked index such as the S&P 500 attracts capital flows, but a New York listing alone is not enough, and most stocks also require a major presence in the United States. And it’s not difficult for motivated U.S. investors to approach high-quality foreign companies. Seven of the 10 largest groups in the FTSE 100 are already majority-owned by US investors. Ashtead owns nearly 60% of U.S. stocks, the same level as U.S.-listed CRH, according to Bloomberg data.
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What London cannot compete with is liquidity. The easier a stock is to trade, the easier it is for investors to take large positions and the lower the cost of capital for companies. While data can be sliced and diced to make the problem seem less severe, CFOs considering a switch will want to draw on the experience of their direct predecessors.
From that perspective, things don’t look good for Britain. Since joining the New York Stock Exchange in January, around 1.3 million U.S.-listed Flutter shares have changed hands each day, more than double the number of shares traded daily in the U.K. a year ago. CRH’s daily trading volume in the US is 2.8 times its pre-transition average. And the effect appears to be lasting. Plumbing and heating sales company Ferguson, which made the switch in mid-2022, maintains its average volume in the US is about 1.7 times that in the UK.
While there is unlikely to be a single quick fix, there may be some adjustments that managers and policymakers can make to increase liquidity and maintain London’s competitiveness. UK stamp duty is one distortion to consider. But it’s important to have clear insight into what’s really holding companies back and what’s not.
nicolas.megaw@ft.com
