The changes to the Financial Conduct Authority’s (FCA) listing rules, are a response to a review launched by the Chancellor to bolster the country’s position as a leading global financial centre in the post-Brexit world.
A declining market?
London was Europe’s top venue for initial public offerings in 2021. IPOs in the UK raised 16.7 billion pounds this year, beating Stockholm’s tally of 127 billion kronor and Amsterdam’s 11 billion-euro haul.
However, this year Amsterdam – the world’s oldest stock exchange – overtook London in terms of the average daily value of the shares traded. Whilst New York continues to attract the majority of tech company listings.
The biggest US stocks each now trade more than the largest European markets. Apple trades $12bn per day and Tesla $21bn a day compared with the Euronext exchange at $8.1bn a day in total and the London Stock Exchange just $6.1bn.
New share listing rules
The FCA has made some important changes, to ensure the London Stock Exchange remains a trusted and attractive place for growing businesses to float. The new rules allow for dual-class shares and lower the minimum stake founders must float in an IPO.
This levels the playing field with other exchanges that already have dual listings – Amsterdam, Singapore, Hong Kong, and the US.
The hope is that this move attracts more tech, fintech and growth-oriented businesses, and we’ve already seen evidence of this. Wise debuted on the London Stock Exchange through a direct listing in July this summer. We’d followed the company closely as it was owned as part of the private company allocation in one of our high conviction global equity funds, Scottish Mortgage.
Unfashionable stocks
Few other indices are as top-heavy with leading oil and mining finance stocks as the FTSE, with six of the world’s biggest, including companies such as Glencore, BHP, and Rio Tinto. As we transition our economy away from fossils fuels, we will need significant industrial metals including Cobalt, Copper and Lithium. The question for us is how we gain this exposure to the materials sector without compromising our sustainability standards.
Banks and insurers also make up a large part of the FTSE 100’s weight, although the sector has been battered and bruised because of the pandemic. HSBC is the biggest bank by market cap. That means it plays a substantial role in moving the UK’s most famous index. But its fortunes are decidedly international – a feature common amongst many FTSE-100 companies, with about 65% of pre-tax profit coming from Asia.
Healthcare sector
One sector the UK is a leader in is healthcare. AstraZeneca and GlaxoSmithKline are two of the top five largest companies on the FTSE 100 by market cap and have shown themselves to be world leaders in their field.
It is not just large companies that are driving investment into UK’s listed healthcare companies. Oxford Nanopore Technologies (ONT), a gene sequencing specialist and a rare case of a biotech firm floating in London, has seen its shares soar since listing at the end of September. The company gained global attention last year as its sequencing devices were essential in tracking mutations and identifying Covid-19 variants.
More choice
In the short term, the London Stock Exchange’s biggest companies will continue to be traditional profit and cash generative businesses. But this month’s changes will broaden the listed investment landscape for investors in the UK.
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