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Labour wastes no time in attempting to reinvigorate the UK’s capital markets

11 July 2024

The regulator says it has made the ‘biggest changes to the UK listing regime in over three decades’.

By Emma Wallis,

News editor, Trustnet

The Financial Conduct Authority (FCA) is overhauling the rules for companies seeking to list on the UK stock markets. The regulator said its changes aim to “boost growth and innovation” and are the most significant amendments to the UK’s listing regime in more than three decades.

The new rules, which will come into effect on 29 July, abolish the need for shareholders to vote on significant or related-party transactions. They also introduce more flexibility around enhanced voting rights. Shareholders are still required to approve major events such as reverse takeovers.

Chancellor Rachel Reeves said: “These new rules represent a significant first step towards reinvigorating our capital markets, bringing the UK in line with international counterparts and ensuring we attract the most innovative companies to list here.”

The number of listed companies in the UK has fallen by about 40% since 2008, according to the government’s UK Listing Review. A spate of British companies – including chip designer ARM Holdings and building materials group CRH – have moved their primary listings to the US to boost their valuations and tap into the US government’s spending spree through the CHIPS and Science Act and the Inflation Reduction Act.

Between 2015 and 2020, the UK accounted for 5% of initial public offerings globally, more or less in line with the UK’s approximately 4% position in global indices, but this is a statistic the regulator wants to improve.

Sarah Pritchard, executive director of markets and international at the FCA, said: “A thriving capital market is vital in delivering investment to growing companies plus returns and choice to investors. That’s why we are acting to make it more straightforward for those seeking to list in the UK, while retaining vital protections so investors can help steer the businesses they co-own.”

Capital market reform, such as making it easier to float and undertake mergers and acquisitions, has “real momentum” behind it, said Sue Noffke, Schroders’ head of UK equities.

She also expects Labour’s planning reforms to help construction companies, while a reversal of the ban on onshore windfarms will favour utilities and the renewable energy sector.

“Such changes could open up great investment opportunities for companies involved in providing grid infrastructure for the renewable transition, while many quoted housebuilders should benefit from planning reform,” Noffke explained.

Going forward, Hargreaves Lansdown hopes that the new government will introduce regulation to improve retail investors' access to initial public offerings (IPOs) and secondary capital raising rounds. At the recent Raspberry Pi IPO, the investment platform was significantly over subscribed, which proves that demand from retail investors is there, said Tom Lee, head of trading proposition.

"Boosting retail investment on the stock exchange will have wider market benefits providing depth and liquidity, as well as boosting interest in investment with the wider public, unlocking further capital for UK-listed companies," Lee said.

However, Chris Beckett, head of equity research at Quilter Cheviot, warned that the listing rules are not the main reason for the London market’s demise and said reforming them is “very admirable” but “a bit of a red herring”.

“The main reason for the gloomy clouds over the City is the makeup of the main indices. London is home to large, legacy industry companies, such as miners, oil and gas and financials, which have been out of favour in the past decade and show no real signs of becoming loved once more,” he argued.

Beckett was sceptical about the government’s ability to attract exciting growth businesses to the UK. Growth investors gravitate towards the US, so “if a business wants to achieve an attractive valuation, it too will go to America”, he suggested. “Many of the companies in the FTSE 100 are global in nature too, so will naturally look to overseas markets if that is a better fit for them.”

Yet despite the UK’s underdog status versus North America, the investment community is optimistic about the new Labour government ushering in a period of stability, which fund managers hope will attract international investors back into UK equities.

John Ions, chief executive officer of Liontrust, said he was encouraged by the government’s “pro-growth agenda”. “Along with falling inflation and the expectation of a reduction in interest rates, this should encourage international investors to return to the UK and boost capital flows to the stock market,” he concluded.

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