In response to statements suggesting a slowdown in the United Kingdom’s primary stock market, David Schwimmer, at the head of the London Stock Exchange, strongly rejected these claims, asserting that it remains “an exceptionally robust, highly successful, and efficiently functioning market.”
Participating in a roundtable talk closely watched by MarketWatch, Schwimmer, the Chief Executive Officer of LSEG, stated, “The London markets operate exceptionally well.” He linked the current shortage of initial public offerings (IPOs) to the cyclical nature of markets and the complex global economic landscape, boldly saying, “IPO markets open, IPO markets close, but they will inevitably resurface.”
This year has witnessed a significant 38% reduction in trade rates on the City stock exchange, followed by a substantial drop in the number of initial public offerings (IPOs), plummeting from 26 in the first half of 2022 to a meager 18 in the first half of 2023.
This evolving situation has raised great concerns among experts. Charles Hall, Head of Research at Peel Hunt, voiced his apprehensions, stating, “We find ourselves ensnared in a downward spiral, where valuations are meager, liquidity is diminishing, investors are witnessing withdrawals, and the inclination to go public is gradually waning.”
Schwimmer, however, argued that the decreasing number of IPOs is indicative of wider macroeconomic conditions rather than being exclusive to the London Stock Exchange. “The macroeconomic environment exerts its influence on markets globally,” he stated.
The choice of the British tech giant ARM Holdings PLC to opt for a listing in New York in August 2023 was regarded as a major defeat for the main stock market in the U.K. Critics viewed it as additional proof that companies are growing favoring the U.S. over the U.K. for IPOs.
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Schwimmer rejected such ideas, saying, “There is a great deal of mythology regarding this. The idea that a better value is achieved in the U.S. is a fallacy. In certain cases, London boasts a higher value.” He further added, “Regarding liquidity, LSEG itself has divested £10 billion of its stock this year, encountering no liquidity-related challenges.”
The Chief Executive of LSEG, who took the post in April 2018, credited the desire of companies to list in New York instead of London to “compensation practices” in the U.K. He pointed to the higher remuneration given to leaders of U.S.-listed companies as a driving force in this choice.
Schwimmer also put blame on the U.K. press for creating negativity around London’s markets. “There exists a markedly distinct media and cultural atmosphere here compared to other markets I have operated in,” noted the native New Yorker and former Goldman Sachs executive.
He noted the divergence in the handling of ARM by U.S. media sources, noting the lack of criticism despite the semiconductor company’s shares currently selling below the IPO price. “ARM completed its offering, and its shares are selling below the IPO price. I have not met any criticism of the U.S. market,” Schwimmer pointed out.
In stressing the vitality of the U.K.’s main stock market, Schwimmer stressed the need for a thorough knowledge of market cycles. “IPO markets are inherently cyclical. They show stages of opening and closing, and this fluctuation is not unique to the U.K.,” he explained. Schwimmer noted the historical resilience of the London markets, saying, “We have weathered different cycles and emerged stronger. This time is no different.”
Addressing worries about lower liquidity, Schwimmer emphasized LSEG’s successful divestment of £10 billion in stock, stressing the lack of liquidity-related impediments. He further argued that the focus on liquidity fails to recognize the larger economic conditions influencing markets globally.
The move by ARM Holdings PLC to list in New York sparked talks about valuations and perceptions. Schwimmer challenged the popular view that U.S. markets regularly offer better valuations, citing instances where London outperforms. He stressed the need to dispel myths and highlight the nuanced nature of pricing patterns in different markets.
Schwimmer also delved into the impact of compensation policies on listing choices. He argued that higher executive pay in U.S.-listed firms works as a magnet, drawing businesses to list in New York. This viewpoint adds a layer of economic reasoning to the decision-making process, beyond market sentiment and impression.
Regarding media coverage, Schwimmer mentioned the unique media environment in the U.K., emphasizing the need for a more balanced viewpoint. He drew attention to the comparative treatment of ARM by U.S. media sources, noting the lack of critical commentary despite the company’s shares trading below the IPO price. This finding raises questions about the role of media narratives in shaping market views.
In closing, Schwimmer repeated the endurance and health of the London Stock Exchange, stressing the cyclical nature of market dynamics. He urged a detailed understanding of the factors affecting market trends, dispelling myths that could overshadow the basic strengths of the U.K.’s main stock market.
