UK’s stock market is in a ‘doom loop’ that’s undermining London’s status as a global financial capital, investment bank says

Britain’s small and mid-sized share market is shrinking rapidly, calling into question London’s status as an international financial center, according to British investment bank Peel Hunt.

The absence of IPOs, as well as a wave of takeovers by foreign and private equity companies, means more companies are leaving the UK market than joining it. The trend is particularly pronounced for the FTSE Small Cap Index, which Peel Hunt says has lost 10% of its members and 20% of its market capitalization this year.

“We are currently in a doomsday loop, where valuations are low, liquidity is diminishing, investors are seeing withdrawals and there is little appetite for an IPO,” wrote Charles Hall, head of research at Peel Hunt , in a report. “If this continues, the UK could lose a crucial part of its financial ecosystem. »

While Peel Hunt’s analysis focuses on smaller UK companies, the blue-chip FTSE 100 index is also suffering. London lost its status as Europe’s largest stock market last November, continuing a fall in stocks dating back to Britain’s vote to leave the European Union in 2016. reconquer the crown, but the market is still struggling amid a struggling economy and a trend of companies fleeing to New York to list there.

This includes future UK market champions who have chosen to list in the US, such as chip designer Arm Holdings Plc, and companies which have moved their primary listing to New York, such as Irish materials company construction. CRH Plc. The listing failures of several high-profile London IPOs in recent years, including Aston Martin Lagonda Global Holdings Plc and Deliveroo Plc, have not helped.

Decreasing the number of shares weighs on economic growth and investment, and becomes a vicious cycle for investor flows, Hall wrote. Peel Hunt analysis shows that 27 companies with a market capitalization of more than £100 million ($122 million) have received M&A offers so far this year, mainly from buyers financiers or foreign suitors, and could therefore leave the market. These include FTSE 250 members Dechra Pharmaceuticals Plc and Network International Holdings Plc.

Hall said to come regulatory reforms for UK capital markets are welcome, but attracting investment in smaller stocks must also be addressed through reform of tax measures.

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