A Market Without Investors
The Case of the Shrinking UK Stock Market
My first job was on a trading floor. Each morning at 7am the elevator would disgorge me into a vast space and I would pick my way through the mesh chairs and banks of screens to my desk in the far corner. I was very junior—my job was to fetch cappuccinos and rearrange spreadsheets—but that wasn’t why I was in the corner. I was part of a fledgling European research department and, at the UK investment bank where I worked, Europe sat on the periphery.
Most of the trading floor was the territory of the UK stock trading business. UK traders sat at its center, conveying prices for Marks’s and BATs (top ten stocks, both) in unfiltered Cockney. Around them, salespeople, recruited from the ranks of the British Army and the England rugby team. And then, the analysts—my sort, except their focus on UK stocks invested them with more influence. Between them, they steered vast amounts of money around the UK stock market, then the third largest in the world behind New York and Nasdaq. In the decade I joined, the benchmark FTSE 100 index would triple and the London market would grow to host around three times more companies than rival Paris, including four of the 25 most valuable companies in the world.
It’s not like that anymore. Since the year 2000, the index has barely returned 20%, and its companies are fleeing. Last year, UK chip designer Arm Holdings listed in New York and others, including Flutter Entertainment (subject of a Net Interest briefing here) and buildings material company CRH have followed. From its lofty heights, the London market is now the ninth largest in the world.
But things can only get better? Over the past three months, the FTSE 100 has outperformed even Nasdaq, its valuation sits at a discount to many other markets, some of the structural factors that have suppressed the market for so long are receding, and leading investors are taking note. An election on July 4 could be a catalyst. To see if now is the time to buy British, read on…
(Lots of charts in this one. Paid subscribers can email for a full deck.)