The shocking underperformance of the London stock market is no longer just a global humiliation but a national crisis. Bad policy choices threaten to make it worse
It is a bit simplistic (and likely political) to blame everything on Brexit! European regulations, notably MIFID 2, have killed European Smid cap brokering, seen sell-side juniorise research and global asset managers move their Asian, US PM’s geographically outside of MIFID’s reach where they can pay bundled and where brokers can still make a good living.
The UK is particularly blighted by MIiFID as the liquidity drain has made single country strategies too difficult from a liquidity perspective. There were more U.K. specific $ AUM than any other market in Europe - so the problem is most acute!
Add in the European obsession with ESG. Also not great when 40% of your benchmark is in oil, mining, tobacco and alcohol! I can tell you nobody could care less about ESG in Asia!
So is the issue being too close to Europe or not close enough? Not a single factor issue!
For a lot of international investors, the key attraction of the UK was that it offered a base where your lawyers understood the language in a market of over 500 Million people. It should be obvious that a market of just 68 Million just isn't quite as attractive.
Enjoyed this. I think Labour will have to change the mood music if they get elected. Rejoining the single market will have to be debated and the electorate educated about its merits. The right wing press needs to be taken on
Brexit is a good example of the motto “ask a stupid question and you will get a stupid answer “. It was madness to risk membership of a pan European trading body to the whims of a majority of people who had no knowledge or interest in the advantages of membership of that trading body. Cameron and Osborne now ignore the consequences of their naivety and their gutless kowtowing to the right wing Tories of the ERG, led by Rees-Mogg.
This is an excellent articulation of London’s problems. Brexit supporters failed to realise the consequences of a de-globalised stock market, as you neatly put it.
There is zero strategic reason to invest in London’s stock market and NYC is one of the biggest beneficiaries of its rapid decline.
Brexit voters were warned about this but it was dismissed as project fear.
Good analysis as always Simon - thanks. There's also plenty of analysis about the relatively weak management of UK companies and lack of diversity on its boards given none of the FTSE 100 has ever received VC funding or has a VC or entrepreneur on its board (as far as i can tell - Vodafone was a spinout from Racal). The lack of management understanding about how to use innovation tools - R&D, M&A and corporate venture capital/open innovation - effectively lies behind much of the actual performance of the business given 80% of total shareholder returns over a 10-year period comes from innovation. In this light, it's no surprise RELX is the best performer given its management does understand these tools. Analysis of why the UK is underweight requires a deeper analysis of why productivity and GDP growth rates have been slower-than-peers through lack of training and investment in venture from the businesses not just the pension funds
It’s incredible to me that not just the UK people but a significant chunk of their political and media class think that because the UK has always been a wealthy country they have an unalienable right to continue to be so, but pre-WW2 was a wealthy country too, on a par with Western Europe and then a series of bad policy choices delivered them decades of pain, I really fear that is what is coming for Britain
Interesting piece of political rhetoric which doesn't explain how Brexit has ruined the stock market but just states what we already know that post Brexit global investors have chosen to de-rate the UK stockmarket relative to other markets. The stockmarket is not the economy and the economy is not the stockmarkent. Indeed there is no correlation between GDP and stockmarket indices. Of the many factors Simon mentions that have contrived to weaken and devalue our markets nearly all were in play prior to 2016. Sorry, hate to disappoint you, but Brexit didn't wreck the UK economy and it hasn't wrecked the UK stockmarket, the latter is simply currently an attractive valuation of the many successful companies currently listed. As Simon points out the PE values are historically and geographically at low levels. Time to buy.
Excellent, if terrifying, account of the UK's steady decline. I always thought the forecast 4% hit from Brexit was a bit optimistic. The decline inevitably comes with multiplying factors that grow this number over time.
We can make incremental changes that will help make our listed markets more attractive- I would propose that we spend a bit of time looking at making the execution phase of share buybacks more efficient. Allocating capital to share buybacks is divisive, so I am not picking up that argument, but once the decision is made lets execute the buybacks well. If we do, then the result is better shareholder returns (well better than if the buyback was executed poorly). There are 4 parts to focus on, which in my opinion every market gets wrongs, so if we improve in the UK we get a leg up....to pick just one, look at our disclosure rules for buybacks.... remember that when a company buys back shares, they are buying them for their holding shareholders...so lets think of the buyback in terms of those investors. Here are our current disclosure rules 1) when board approves that the executive can allocated capital to a buyback (my view leave unchanged, the company is the ultimate insider, so disclosure important. 2) on initiation of a buyback programme announce it and lots of details- size, timing etc (my view- it like Buffett saying - I am about to buy £1bn of stock X..the only people this hurts is the shareholders who remain- suggest we delay this data by a quarter or so) 3) On T+1 the company has to tell the market how many shares they purchased yesterday, what price and on what venue... not just that but every single child order - So anyone interested in how Mr Buffett is progressing can monitor in near real time, and look at exact what execution strategy, intraday algo and venue used...it is a market makers dream data source (my view - delay this data by a quarter or so).... if you are interested in more see...https://www.candorpartners.net/_files/ugd/af1214_1d999b16a40248c99bee86f8a07c7fe5.pdf
We can make our markets better - it is just going to have to be one small step at at time...lets look for all those little steps.
I think Brexit was less about inequality and more about out of control immigration and all of the issues with identity and culture that creates. It’s pretty easy to tell from listening to Farage, etc.
Maybe that is a blind spot for London elites. They could have kept your stock market so long as they didn’t overrun the country with migrants.
Hi Simon, can you drop me an email at steve@bylinetimes.com? I'm after a picture of you to accompany an article about the podcast you appeared on. Thanks in advance.
Hi Simon, can you drop me an email at steve@bylinetimes.com? I'm after a picture of you to accompany an article about the podcast you appeared on. Thanks in advance.
This is a brilliant assessment of what has happened - and continues to happen - to the UK stock market since Brexit. Thank you 🙏
It is a bit simplistic (and likely political) to blame everything on Brexit! European regulations, notably MIFID 2, have killed European Smid cap brokering, seen sell-side juniorise research and global asset managers move their Asian, US PM’s geographically outside of MIFID’s reach where they can pay bundled and where brokers can still make a good living.
The UK is particularly blighted by MIiFID as the liquidity drain has made single country strategies too difficult from a liquidity perspective. There were more U.K. specific $ AUM than any other market in Europe - so the problem is most acute!
Add in the European obsession with ESG. Also not great when 40% of your benchmark is in oil, mining, tobacco and alcohol! I can tell you nobody could care less about ESG in Asia!
So is the issue being too close to Europe or not close enough? Not a single factor issue!
For a lot of international investors, the key attraction of the UK was that it offered a base where your lawyers understood the language in a market of over 500 Million people. It should be obvious that a market of just 68 Million just isn't quite as attractive.
Enjoyed this. I think Labour will have to change the mood music if they get elected. Rejoining the single market will have to be debated and the electorate educated about its merits. The right wing press needs to be taken on
Brexit is a good example of the motto “ask a stupid question and you will get a stupid answer “. It was madness to risk membership of a pan European trading body to the whims of a majority of people who had no knowledge or interest in the advantages of membership of that trading body. Cameron and Osborne now ignore the consequences of their naivety and their gutless kowtowing to the right wing Tories of the ERG, led by Rees-Mogg.
This is an excellent articulation of London’s problems. Brexit supporters failed to realise the consequences of a de-globalised stock market, as you neatly put it.
There is zero strategic reason to invest in London’s stock market and NYC is one of the biggest beneficiaries of its rapid decline.
Brexit voters were warned about this but it was dismissed as project fear.
Good analysis as always Simon - thanks. There's also plenty of analysis about the relatively weak management of UK companies and lack of diversity on its boards given none of the FTSE 100 has ever received VC funding or has a VC or entrepreneur on its board (as far as i can tell - Vodafone was a spinout from Racal). The lack of management understanding about how to use innovation tools - R&D, M&A and corporate venture capital/open innovation - effectively lies behind much of the actual performance of the business given 80% of total shareholder returns over a 10-year period comes from innovation. In this light, it's no surprise RELX is the best performer given its management does understand these tools. Analysis of why the UK is underweight requires a deeper analysis of why productivity and GDP growth rates have been slower-than-peers through lack of training and investment in venture from the businesses not just the pension funds
It’s incredible to me that not just the UK people but a significant chunk of their political and media class think that because the UK has always been a wealthy country they have an unalienable right to continue to be so, but pre-WW2 was a wealthy country too, on a par with Western Europe and then a series of bad policy choices delivered them decades of pain, I really fear that is what is coming for Britain
Interesting piece of political rhetoric which doesn't explain how Brexit has ruined the stock market but just states what we already know that post Brexit global investors have chosen to de-rate the UK stockmarket relative to other markets. The stockmarket is not the economy and the economy is not the stockmarkent. Indeed there is no correlation between GDP and stockmarket indices. Of the many factors Simon mentions that have contrived to weaken and devalue our markets nearly all were in play prior to 2016. Sorry, hate to disappoint you, but Brexit didn't wreck the UK economy and it hasn't wrecked the UK stockmarket, the latter is simply currently an attractive valuation of the many successful companies currently listed. As Simon points out the PE values are historically and geographically at low levels. Time to buy.
Excellent, if terrifying, account of the UK's steady decline. I always thought the forecast 4% hit from Brexit was a bit optimistic. The decline inevitably comes with multiplying factors that grow this number over time.
We can make incremental changes that will help make our listed markets more attractive- I would propose that we spend a bit of time looking at making the execution phase of share buybacks more efficient. Allocating capital to share buybacks is divisive, so I am not picking up that argument, but once the decision is made lets execute the buybacks well. If we do, then the result is better shareholder returns (well better than if the buyback was executed poorly). There are 4 parts to focus on, which in my opinion every market gets wrongs, so if we improve in the UK we get a leg up....to pick just one, look at our disclosure rules for buybacks.... remember that when a company buys back shares, they are buying them for their holding shareholders...so lets think of the buyback in terms of those investors. Here are our current disclosure rules 1) when board approves that the executive can allocated capital to a buyback (my view leave unchanged, the company is the ultimate insider, so disclosure important. 2) on initiation of a buyback programme announce it and lots of details- size, timing etc (my view- it like Buffett saying - I am about to buy £1bn of stock X..the only people this hurts is the shareholders who remain- suggest we delay this data by a quarter or so) 3) On T+1 the company has to tell the market how many shares they purchased yesterday, what price and on what venue... not just that but every single child order - So anyone interested in how Mr Buffett is progressing can monitor in near real time, and look at exact what execution strategy, intraday algo and venue used...it is a market makers dream data source (my view - delay this data by a quarter or so).... if you are interested in more see...https://www.candorpartners.net/_files/ugd/af1214_1d999b16a40248c99bee86f8a07c7fe5.pdf
We can make our markets better - it is just going to have to be one small step at at time...lets look for all those little steps.
I think Brexit was less about inequality and more about out of control immigration and all of the issues with identity and culture that creates. It’s pretty easy to tell from listening to Farage, etc.
Maybe that is a blind spot for London elites. They could have kept your stock market so long as they didn’t overrun the country with migrants.
The golden goose no more, it seems
Thanks for the explanation. Brexit seemed right from the start to be an extravagant exercise in foot shooting.
Hi Simon, can you drop me an email at steve@bylinetimes.com? I'm after a picture of you to accompany an article about the podcast you appeared on. Thanks in advance.
Hi Simon, can you drop me an email at steve@bylinetimes.com? I'm after a picture of you to accompany an article about the podcast you appeared on. Thanks in advance.