Real concerns are growing over the state of the UK financial market as it faces historic collapse of domestic firms. Since those days three decades ago, the percentage of the UK market owned by domestic institutions has fallen steeply from 50% to under 5%. This alarming reduction begs all sorts of questions about the future of the UK’s financial landscape. Can it keep large scale companies in an era of fierce global competition?
This is reflected in the trend that shows UK managers of pension funds are drastically investing more in US markets relative to the domestic markets. To them, making US investments produce 4 times the return on UK ones doesn’t cut it. Their faith has been rewarded over and over again. This change is indicative of a larger trend – concern about the profitability and appeal of UK-listed firms.
The 500 largest publicly traded US companies are what is known as the S&P 500. After all, these companies combined have an astounding average valuation of 28 times their annual profits. This is particularly not the case for the FTSE 100 index, which is made up of the 100 largest publicly traded firms in the UK. These companies command just 12x their annual profits. These sorts of discrepancies illustrate a widening gulf in perceived value between these twin titan deed restricted labor markets.
The recent campaigning around Deliveroo is a perfect example of this trend. When Deliveroo went public in London, DoorDash immediately began circling with a hostile takeover offer. This offer placed DoorDash at more than five times the valuation of its UK rival Deliveroo over that span. Fast forward just four years, and DoorDash’s value had soared to 35 times that of Deliveroo. Such events not only underscore the challenges faced by UK firms but illustrate the allure of US markets for both investors and potential buyers.
Danny Rimer, a prominent figure in the investment community, expressed his sentiment regarding this situation:
“I would have voted for a US listing.” – Danny Rimer
That attitude is indicative of an increasing number of investors who believe the path to growth and profitability lies in US-listed names. The American market continues to dazzle investors with its limitless prospects. Among its many other treasures, you’ll discover the Magnificent Seven—America’s most successful and most overlooked companies. This cohort consists of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—all pioneers of technology as well as the S&P 500’s market cap.
For the UK’s financial services industry, these trends must raise serious alarm bells. That’s somewhat understandable, given that this sector represents more than 10% of the nation’s economy and is an essential driver in producing states’ tax revenues. The loss of UK companies listed on the London stock exchange because of takeovers by private buyers from the US and elsewhere has a disproportionately negative effect on jobs and capital investment in the UK. It cuts ancillary business opportunities for accountants, lawyers, financial PR firms and others who rely on public listings.
As increasingly more of our domestic companies start to look overseas, the threat of US listings has become very real. The irresistible pull of higher valuations and increased investor demand leads many to reconsider their plans. In fact, most specialists consider this trend a dire malignance. Left to fester, the UK’s reputation as a global financial center may be critically undermined.