- UK stock market listings are down by a fifth since 1996 – but America’s are down by a half
- Number of new floats in the USA is also depressed and performance of 2024’s market newbies has been poor Stateside
- Problems of weak IPO markets and reduced listings may not be unique to the UK after all
- A regulatory race to the bottom may not be the answer, if cheap debt and the rise of private equity are among the challenges facing stock exchanges
“Its stock market listings are down by almost half since 1996, the number of new floats is down by nearly 90% from 2021’s peak and this year’s initial public offerings have left investors sat on an average loss of 7.1%. Yes, this deadbeat stock market is… the USA,” says AJ Bell investment director Russ Mould. “While the UK market is regularly pilloried for the lack of new joiners and shrinking membership, the challenges faced by London are far from unique. As such, a race to the regulatory bottom may not be the solution to the dearth of primary market activity if this is not actually the root cause of the problem.
“The London Stock Exchange continues to attract plenty of stick for the lack of new joiners and the steady stream of firms which are leaving the London market, either to relist elsewhere (such as New York, in the case of Flutter) or because they are being taken over.
“According to the London Stock Exchange’s own data, the number of listings across the Main Market and AIM had shrunk to 1,718 as of August, down from 2,745 at the end of 2009, a drop of 37%.
Source: London Stock Exchange data
“New listing activity has undeniably been quiet, with 26 firms listing in London’s Main Market or AIM in 2024 to date, and only nine of those are initial public offerings (IPOs). That compares to 173 new listings in the recent peak year of 2021 and leaves London on track for its weakest year since the end of the Great Financial Crisis in 2009.
Source: London Stock Exchange data
“In this context, it seems justifiable to castigate London for its failings and seek remedies, such as looser listing requirements to make it easier, cheaper and less onerous for firms to raise the capital they need.
“And yet America, regularly (and in many ways rightly) hailed as the world’s most vibrant and successful stock market faces similar difficulties, even if the scale of the numbers in absolute terms is far bigger, as you would expect of the world’s largest economy, home of the largest stock market and the globe’s reserve currency for good measure.
“Between 1996 and 2023, the number of stocks listed on US exchanges fell by nearly half to 4,315 from an all-time high of 8,090, according to World Bank data. The figure has fallen by 2% since the end of the Great Financial Crisis. London’s number of listings is down by 19% since 1996, according to data from the World Bank and the London Stock Exchange, to 1,718 from 2,041, a much smaller decline.
Source: World Bank, NYSE, NASDAQ, Statista
“A relative dearth of initial public offerings and new listings remains a challenge for the USA, too.
“America has hosted 152 IPOs in 2024 to date, to leave it some way below the average annual run rate of 253 that has prevailed since 2000, let alone the boom of 2001 when 1,035 new firms came to New York.
Source: NYSE, NASDAQ, Statista, Stock Analysis
“Nor has this year’s crop of American new joiners particularly covered itself in glory. Of 2024’s 152 IPOs, 67 are down from their listing price, 34 are unchanged (as they are Special Purpose Acquisition Vehicles that are still casting around for a suitable target), and just 51 are up. The average book loss overall is 7.1% at the time of writing.
Source: Stock Analysis data, as of Monday 30 September
“This probably seems a rather harsh treatment of the US equity market when the Dow Jones Industrials and S&P 500 benchmarks trade at all-time highs and the NASDAQ Composite sits only a fraction below July’s zenith. But London’s FTSE 100 set a new peak in May of this year and sits within touching distance of that and while the FTSE 250 and FTSE Small Cap trade below prior peaks, America’s Russell 2000 does so as well.
“One area where New York does lead by far is in trading volumes, as perhaps you would expect, given the greater number of listed companies and how the market cap of just the S&P 500, at $48 trillion, dwarfs that of the FTSE 350, at some £2.5 trillion ($3.3 trillion). The trend is much stronger in the USA, too, although here the rise of the Magnificent Seven, among others, may be helping to compensate for the lack of market newbies.
Source: LSEG data
Source: NYSE, CBOE, LSEG Refinitiv data
“Even so, some of the challenges that face London are more universal than they seem, with the result that listing rules and regulations may not be the problem.
“This leads to the conclusion that easing those listing rules and regulations may not be the solution, either, especially as the chair of the US Securities and Exchange Commission, Gary Gensler, regularly faces criticism that he is taking too stringent a line on financial markets, and not only when it comes to cryptocurrencies.
“A regulatory race to the bottom could, conceivably, lead to problems further down the road and sow the seeds of future scandals and accidents, if the rules favour sellers (as firms list) and investors (the buyers of that newly issued paper).
“Perhaps the issue at hand is a wider one, namely de-equitisation, to use a nasty neologism.
“Regulation has been tighter after the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in the US and the UK Companies Act of 2006 in the UK. Changes to the UK Corporate Governance Code and UK Stewardship Code, the introduction of the Senior Managers and Certification Regime for financial services firms and calls for ever-greater disclosure on environmental, social and governance issues, as well as financial performance, all increase scrutiny with the goal of promoting transparency. They do, however, also increase the cost and burden of being a publicly listed company.
“Yet these changes came into force in response to market accidents and scandals and as such were designed to protect investors. Rolling back those protections could increase the risks for buyers and holders of equity.
“If nothing else, more risk generally means a lower valuation multiple of earnings or cash flow, as investors seek compensation for the greater dangers, which also mean they could demand a higher yield (either through higher dividends or a lower share price).
“The bigger issues that may be at work, besides regulation, include a long-term trend to lower interest rates which means debt is a cheaper and more attractive option relative to equity. Another is the rise and rise of private equity, funded by ever-cheaper debt and favourable tax treatments, which shield executives from the public glare and the demands of shareholders.
“There is no apparent quick fix for either of those, especially as interest rates are trending lower once more, although any unexpected problems in the private equity arena could change things, should they find themselves needing to sell assets (and re-list them) rather than gobble them up at a relentless rate. Higher-for-longer interest rates could be a challenge here, especially for those PE firms who bought assets in 2021 and are thus locked into valuations which may be difficult to attain in a world where capital has a greater cost.”
