The Garrulous Jay – The Party Over The Pond

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Imagine hosting a party that nobody wants to attend… Or, perhaps worse, a party that people leave half-way through because there’s something better going on at the neighbours. Pity then the residents of Paternoster Square, home of the London Stock Exchange (LSE), who seem to find themselves in this unfortunate position.

While the denizens of London EC4 have done their best, some corporate partygoers have been more excited by what’s on offer at One World Trade Center or on Wall Street of late.

In recent weeks we have seen the announcement by Cambridge-based technology company ARM that it will list in New York rather than London. This has been portrayed as a snub to the LSE, the FCA (the UK’s financial regulator) and London as a financial centre.

But ARM is not alone. UK-based electric vehicle-maker, Arrival, listed on NASDAQ two years ago. And London-listed building materials group CRH has trailed its intention to move its primary listing across the pond, following in the footsteps of plumbing group Ferguson, which made the move last year.

There has even been press speculation in recent weeks that Shell might consider doing the same.

I think three things make the Party Over The Pond more attractive:
• They have a bigger buffet
• The cocktails are racier
• There are more like-minded people.

The bigger buffet (no pun intended, Warren) – The pool of capital looking to invest in publicly traded companies is much bigger in the US. Taking the MSCI All Companies World Index as a proxy for this, at the end of February the US had a country weighting of 60.29%. This compared to 3.95% for the UK.

The racy cocktails – Broadly speaking, US stocks trade on higher multiples than their UK peers. The S&P500 trades on a trailing 12-month PE ratio of around 20x, for example, whereas the comparable figure for the FTSE100 is about 15x.

More like-minded people – No one likes a party where you have nothing in common with the other guests. Taking the sector breakdown for the iShares Core Index ETFs for the S&P500 and the FTSE100, the former had a weighting to Information Technology of 27.22%, the latter just 0.77%, at the end of February.

Some have argued that the problem lies with the inability of UK-listed companies to articulate clear and compelling ‘equity stories’ to attract investors – and more companies – to London. But as a tired Hamlet says to Polonius when asked what he’s reading, “Words, words, words”.

Words are not enough: actions speak louder than words. The challenge goes deeper than this and it starts at home. Britain will need to build bigger, better businesses that want to both be here and be listed here. This, will take a concerted effort on the part of both public and private sectors working in unison.

If it works, the capital and companies will surely flow back to London. If not we can all take our money and join the Party Over The Pond.