The British market for small and medium-sized shares is contracting rapidly, challenging London's status as an international financial center, according to British investment bank Peel Hunt.
The lack of initial public offerings, coupled with a flurry of acquisitions by foreign and private equity firms, means more companies are leaving the UK market than joining it. The trend is particularly pronounced in 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 vicious cycle, where valuations are low, liquidity is tightening, investors are seeing withdrawals and there is little desire to go public," Charles Hall, head of research at Peel Hunt, wrote in a report. "If this continues, the UK could lose a crucial part of its financial ecosystem."
While Peel Hunt's analysis focuses on Britain's smaller companies, the blue-chip FTSE 100 has also been suffering. London lost its status as Europe's largest stock market last November, extending a stock slide that dated back to Britain's vote to leave the European Union in 2016. A recent rise in oil prices allowed The UK commodity-based indicator rose recover crown, but the market is still struggling amid a faltering economy and a trend of companies fleeing to New York to go public.
This includes would-be UK market champions that have opted to list in the US, such as chip designer Arm Holdings Plc, and companies that have moved their main listings to New York, such as Irish company Construction materials. CRH Anonymous society. 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.
A shrinking stock of stocks weighs on economic growth and investment, becoming 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, mostly from financial buyers or foreign suitors, and by Therefore they could leave the market. These include Dechra Pharmaceuticals Plc and Network International Holdings Plc, members of the FTSE 250.
Hall said coming soon regulatory reforms for UK capital markets are welcome, but attracting investments into smaller shares must also be addressed through tax reforms.
