The City Exodus: Is London’s Stock Market Facing Its Biggest Challenge Yet?

By Chelsea Chung, President at the King’s Commercial Awareness Society

There has been an increasing number of companies that are looking to exit from London’s stock market and move their listings to the US. Combined with the attraction coming from the Swiss stock market, the London Stock Exchange (LSE) might be facing its biggest challenge yet to maintain London’s position as a leading global financial centre.

Last Thursday saw CRH, the world’s largest building materials group and one of FTSE 100’s biggest companies, shifting its primary stock market listing to the US. CRH’s recent move makes it the latest business to depart from London, continuing the recent trend of companies leaving the LSE.

During the same week, the Japanese multinational conglomerate Softbank abandoned a listing opportunity in London for its chip designer subsidiary Arm Ltd. This decision was made despite long-term lobbying efforts made by UK politicians in order to focus on a sole listing in the US later this year.

Although ultimately rejected, the UK’s largest company – oil major Shell, has also explored the idea of moving its listing and headquarters to the US. Its market capitalisation of £176bn and revenues of £316bn would have meant a severe threat to London’s leading status as an international financial hub if the move had been completed.

Lastly, the recent trend of Chinese companies flocking to Zurich for their listings must not be neglected. $3.2bn has already been raised amongst nine Chinese companies in the country, according to the operator of the Swiss stock market. This signifies an intention to attract European investors after China recently freed its cities from strict Covid lockdowns. However, London has not been the chosen market to do so seemingly due to tougher listing rules and audit standards.

The continuous line of departures from the LSE alarmingly indicates the UK’s challenge in retaining currently listed companies and attracting new businesses.

The US is generally seen as the country that supports economic growth the most.This view has been reinforced especially after the Biden administration recently passed the Inflation Reduction Act (IRA), which entails a massive $369bn subsidy to green-tech companies. The Act aims to encourage investment and stimulate the American green economy, and has certainly proven to work so far. For example, Tesla decided last September to pause its original plans to produce battery cells in Germany in an attempt to qualify for the US subsidy. The huge grants therefore convey the prospect of a financially rich government willing to heavily spend on business newcomers. This particularly undermines the UK market as UK-based investors are traditionally more reluctantto invest in the country’s home market.

The relatively harsh listing rules of the LSE could also be a potential cause to the extra appeal from other stock markets. Zurich, for example, is known for having less-demanding requirements related to the transparency of company audits. A link has also been set up last year between the Shanghai and Shenzhen stock markets, and the Swiss stock market. The ‘stock connect’ schemeallows companies listed in either China or Switzerland to raise capital on the other market, therefore aiming to increase market efficiency in the two countries.

In light of the major threats coming from the US Switzerland, London might have to explore further strategies to safeguard its reputation as the world’s leading financial centre. This could involve relaxing listing rules or increasing the amount of grants spent each year on infrastructure to attract foreign investment and retain companies that are currently on London’s stock market.