That the London stock market is sick is hardly in doubt. Deserted by its biggest local investors, rated far more cheaply than comparable markets elsewhere, and watching some of its biggest companies talk about relocating to the US, the question is whether it is sick, nigh unto death, or whether its rating presents an opportunity to make a lot of money when the tide turns.
New issues, those blood transfusions to stock markets, have almost dried up. Businesses that might have listed in London are choosing New York instead. The British investor is just too risk-averse to compete with gung-ho Americans who are always looking for the next Google. This week some of them thought they had found it in VinFast, a Vietnamese maker of electric cars. Offered at $10, valuing the business at $23 billion, the share price went to $37 before sliding back to $22 and bouncing again.
Never mind that the business is heavily loss-making, sold only 7,400 cars last year, a cheapest model that makes your Tesla look like a bargain, and that the reviews of the car have been terrible. The share price has little to do with any of this, since 99 per cent of the stock is controlled by Vietnam’s richest man, Pham Nhat Vuong. The shares being traded are more like casino chips, with those gung-ho traders looking for a turn.
Another new issue, the ludicrously over-hyped WeWork, was downgraded this week by Fitch, which cited “substantial doubt” over its ability to continue. Its peak value was $47bn. Like VinFast, It listed through a Special Purpose Aacquisition Company at a (comparatively) modest $9 billion. Value today: £125m.
This would not be allowed in London’s staid market, which insists on a minimum free float for a full-fat listing. There’s also the suspicion that at least some London investors prefer to read the prospectus before trading. Investors in a SPAC don’t know what they are buying until later, and are drawn in by an ingenious mechanism which seems to promise profits or your money back. FOMO might be a better acronym to describe the process.
SPACs are effectively banned in London. But something has to be done to stop the rot before the likes of BAT, Shell, Rio Tinto or Unilever decide to emigrate. Scrapping stamp duty, an anachronistic tax which is paid on no other major stock exchange, would boost liquidity. Allowing the more arcane requirements of the Companies Act to be put on-line would help today’s door-stopping annual reports to become readable again. The Exchange authorities could help by scrapping the demands that oblige boards to view ESG compliance as important as making money.
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