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London Stock Exchange Faces Exodus as Companies Flock to US Markets
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The London Stock Exchange (LSE) is experiencing a significant shift as several companies, including fintech pioneer Wise and construction equipment firm Ashtead Group, are choosing to move their primary listings to the United States [[2]]. This trend raises concerns about the LSE’s competitiveness and its ability to retain valuable listings.
The Allure of US Markets
several factors contribute to this migration. For many companies, a strategic presence in the United States, the world’s largest economy, is a major draw. Ashtead Group, for example, generates 92% of its sales in North America. Wise sees the United States as crucial for its expansion, targeting 4,000 potential bank clients for its payment platform.
Higher valuations on Wall Street are another significant incentive. British shares currently trade at a 42% discount compared to their US counterparts in terms of future profits, or 25% after sector mix correction, according to Goldman Sachs [goldman Sachs]. Access to deeper and more liquid capital markets is also a key consideration, as highlighted by Wise.
Did You Know? In 2016, the Intercontinental Exchange, owner of the New York Stock Exchange, considered acquiring the London Stock Exchange Group but withdrew due to “insufficient commitment.”
The impact of US Tax Policy
The US tax bill, specifically Section 899, further encourages companies to shift their shareholder base to the United States.This provision introduces retaliatory taxes against non-American corporations with predominantly foreign participation, making a Wall Street listing more attractive.
The tech Sector Drain
The technology sector in the UK is particularly affected by this exodus. The lack of major local tech listings has created a self-sustaining cycle. The acquisitions of DeepMind by Google in 2014 and ARM Holdings by SoftBank Group in 2016 had a ripple effect, weakening the UK’s tech ecosystem.In 2023, ARM Holdings reported a $1.5 billion turnover [SoftBank Group].
Investment Crisis
The departure of tech companies reflects a broader investment crisis in the UK. While European investors are returning to their domestic stock markets, British institutions continue to invest abroad. Fixed contribution funds allocate 70% of their investments to international shares and only 6% to British shares.
LSE’s Response
The London Stock Exchange Group (LSEG) is adapting to these challenges. Under the leadership of former Goldman Sachs group banker David Schwimmer, LSEG has transformed into a business and analysis provider through the acquisition of Refinitiv in 2019. Stock and share trading now accounts for less than 3% of the company’s revenue in 2024.
Interestingly, LSEG’s shares trade at a discount compared to its US competitors in the facts services sector. With 38% of its revenue coming from the United States (up from 12% in 2016) and half of its shareholders being American, LSEG itself could be an attractive candidate for a Wall Street listing.
Potential Solutions
Politicians are exploring various options to reverse this trend. the previous Conservative government proposed a United Kingdom-oriented fund for individual investors, but the current Labor administration has not adopted it. Higher allocation targets for pension funds in the UK have also been suggested.
Though, these initiatives face a significant hurdle: the lack of attractive investment opportunities in the UK.Reforms may come to late to reverse the trend. The LSEG itself faces the temptation of seeking an american listing, but such a move is complex given its role as the London Stock Exchange.
Pro Tip: Investors should carefully consider the long-term implications of these market shifts and diversify their portfolios accordingly.
| metric | UK stock Market | US Stock Market |
|---|---|---|
| Valuation (vs. Future Profits) | 42% Discount | Premium |
| Pension Fund Allocation (Domestic) | 6% | Higher |
| tech Sector Presence | Declining | Dominant |
The Future of the London Stock Exchange
The London Stock Exchange faces a critical juncture. While it adapts to the changing landscape by focusing on data and analytics, the exodus of companies to the US markets poses a significant challenge. The effectiveness of proposed solutions remains uncertain, and the LSE must find innovative ways to attract and retain listings to maintain its relevance in the global financial arena.
The London market opened higher recently, buoyed by positive sentiment ahead of key US data releases and the UK spending review [[1]]. However, the long-term trend of companies seeking listings elsewhere remains a concern.
Evergreen Insights: The Historical Context of Stock Exchange Competition
Competition between stock exchanges is nothing new. Throughout history, exchanges have vied for listings and trading volume, adapting to changing economic conditions and regulatory landscapes. The current shift reflects the increasing globalization of financial markets and the growing importance of the US economy.
The London Stock Exchange, with its heritage tracing back to the 17th-century coffee houses
