FTSE Leaders Explore Foreign Listings Amidst London Market Scrutiny

FTSE Leaders Consider International Listings Amid Valuation Concerns

A recent poll conducted by Deutsche Numis reveals that a substantial 83% of FTSE leaders have considered exploring foreign or dual listings for their companies within the last year. This inclination reflects broader concerns regarding the competitiveness and valuation of the London market. Nearly two-thirds, or 63%, of these executives cited pressure from external stakeholders as a primary driver for re-evaluating their listing structures. Amsterdam has notably emerged as the most favored alternative destination for these potential overseas listings, underscoring the perceived appeal of international markets.

Delistings and Market Share Decline Persist

The consideration of foreign listings is set against a backdrop of persistent delistings from the London Stock Exchange (LSE). In 2024 alone, 88 companies delisted or moved their primary listing away from the London main market, marking the highest annual outflow in over a decade. A prominent example is Wise (WISE.L), which moved its listing to the US, driven by the belief that US investors are more likely to support its revenue-first, long-term growth model. This contrasts with the UK market, where investors often prioritize early revenue visibility, a factor that can limit high-growth technology firms.

This trend has significantly impacted the UK's global market share. At the turn of the millennium, UK-listed companies constituted 11% of the MSCI World Index; today, that share has declined to just 4%. Such a sustained shift poses long-term risks for the broader UK economy, including a potential reduction in influence over its most dynamic sectors.

Underlying Causes of Outflows and Valuation Discrepancies

The exodus and consideration of foreign listings are deeply rooted in valuation disparities. Global equity markets in late 2024 demonstrate a clear divergence, with United States stocks trading at premium multiples. The S&P 500 and other US indices exhibit a cyclically adjusted price-to-earnings (CAPE) ratio of 31.12, significantly above historical averages. In contrast, European equities present a more compelling valuation picture, with the UK's CAPE ratio at 18.64 and Germany's at 20.07. The broad European market trades at a substantial discount, with sector-adjusted price-to-earnings ratios approximately 18% below their American counterparts.

FTSE leaders perceive UK-listed companies as undervalued by an estimated 15-20%, contributing to the pressure from stakeholders to seek listings where higher valuations might be achieved. Furthermore, a long-standing trend of British pension schemes allocating a lower proportion of their funds to domestic stocks since the early 2000s, spurred by government rules, has resulted in "less and less cash under management in London," exacerbating liquidity concerns and valuation pressures.

Regulatory Efforts and Future Outlook

In response to these challenges, the UK government, regulators, and the LSE have implemented a series of coordinated efforts to enhance London's appeal and retain listings. The Financial Conduct Authority (FCA) introduced significant reforms to the listing regime, including the removal of eligibility criteria such as requirements to demonstrate a revenue-earning track record and restrictions on dual-class share structures. These changes aim to attract high-growth technology companies, particularly from the UK's thriving fintech sector. Additional reforms include easing shareholder approval requirements for certain transactions and proposals to raise the prospectus threshold for secondary capital-raising from 20% to 75% of a company's share capital, intending to make follow-on capital raising quicker and cheaper.

Future initiatives include the establishment of the PISCES regulatory framework for a "private stock market" to bridge private and public markets, incentivizing companies to grow in the UK. Pension fund reforms, such as the "Mansion House Compact" committing large DC schemes to allocate at least 5% of default funds to unlisted equities by 2030, and plans to consolidate DC schemes into "megafunds," aim to unlock significant capital for British infrastructure and high-growth companies. Reforms are also anticipated to ease retail investor access to risk assets.

Despite these efforts, the outlook remains mixed. A survey of FTSE 350 company boards revealed that over half expect the LSE to continue experiencing net delistings over the next five years, indicating skepticism about the immediate impact of reforms.

Expert Perspectives on London's Market Health

Expert commentary reflects this divided sentiment. While a "renewed sense of optimism" is noted among some leaders regarding London's future, concerns persist about the effectiveness of current regulatory adjustments. Peter Swabey, Policy & Research Director of The Chartered Governance Institute UK & Ireland, articulated a critical view regarding the FCA's recent reforms:

"The FCA's reforms were counter-productive... They have removed important investor protections, whilst doing nothing to attract new listings. Does the FCA really think that allowing a host of low-quality companies to list in London is going to solve the problem of the all-share index underperforming the S&P500?"

Conversely, a spokesperson for the FCA defended the reforms, stating, "We undertook the most far-reaching reforms of the UK's listings rules in three decades because our regime had fallen increasingly out of step with those of other countries." The FCA also emphasized that regulation is only one component in fostering vibrant public markets and affirmed its commitment to working with the government and industry to achieve sustainable growth. The success of these initiatives in reversing the delisting trend and attracting new capital will be a key determinant of London's market trajectory in the coming years.