London stock market exodus: A reason to worry?

Over the last few months, we’ve seen many reports of major FTSE 100 companies move their main share listing from the UK to the US.

Building materials supplier CRH is the latest big name planning to make such a move. According to the company, this is because about three-quarters of its earnings come from North America, and this market is likely to be a “key driver of future growth”.

But they are not the only ones. Another building materials supplier, Ferguson, moved its primary listing from London to New York in 2022. In addition, technology firm Arm is planning to list its shares in New York, while shareholders at Flutter Entertainment are currently being consulted on a similar move.

So what’s behind this apparent exodus from the London stock market? We’ve asked Terry Hewes, Director and Charted Financial Planner to explain in more detail the government’s ambitions to make London a more attractive destination for companies to list, and if the so called exodus is really something to be worried about.

Take it away Terry…

The Chancellor Jeremy Hunt unveiled the “Edinburgh Reforms” of financial services, which are plans to repeal and replace EU retained laws governing the sector, late last year. The thought behind this initiative is to help secure the UK’s status as “one of the most open, dynamic and competitive financial services hub in the world.” Hunt also added that the Edinburgh Reforms will help to “seize on our Brexit freedoms to deliver an agile and home-grown regulatory regime, that works in the interest of the British people and our businesses.”

Hunt’s declaration does point to a clear and concerted effort to attract businesses to the city, and ensures firms who are currently listed in the city remain there. But is there a reason to worry with the recent departures?

Whilst speaking after the news of Arm’s decision to list in the US emerged, a Treasury spokesperson insisted that the UK continues to attract some of “the most innovative and largest companies in the world”, and pointed out that Arm has committed to “expanding its presence in the UK, providing a boost to growth, jobs and investment”.

The spokesperson also stated that the UK is taking forward ambitious reforms to the rules governing its capital markets, building on our continued success as Europe’s leading hub for investment and the second largest globally.

So publicly, at least, the government is not overly concerned by the recent moves of companies stepping away from the UK. Pension funds and investors can continue to buy shares, regardless of which exchange they are currently listed on.

It’s a fact that being listed in the UK does generate fees for many other businesses domestically. These could include lawyers and accountants and the government have openly described financial services as being vital for Britain’s economic strength. This is likely because it contributes £216 billion per year to the UK economy, including £76 billion in tax revenue! Ministers will therefore need to be mindful of what any decline will do to the UK’s GDP.

There have also been comments in regards to the news of companies making the decision to leave the UK stock market from David Schwimmer, who is the Chief Executive of LSEG- the parent company of the London Stock Exchange. He explained that London still continues to be the leading international financial centre, whilst hinting that the Edinburgh Reform plans have generated lots of interest among investors.

He did however state that there is more that can be done to make it attractive, possibly hinting that behind closed doors, there are serious discussions underway to ensure London maintains its reputation.

Pension funds in this market have dramatically reduced their exposure to equities in favour of fixed income over the last 20 years. This does raise some interesting questions, such as how should pensions be managed in this country, and if they are being managed in an appropriate and efficient way for their stakeholders?

Whilst we eagerly wait for the news on what precise reforms the UK government plan to make, it’s clear that actions need to be made sooner rather than later.

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