What is to become of the UK stock market?
If the headlines reflect reality, it doesn’t look good.
On Wednesday, the Telegraph reported:
One of the world’s biggest miners has said it could quit the London Stock Exchange in a fresh hit to the UK’s unloved stock market.
On Wednesday, FTSE 100 giant Glencore said it was exploring plans to switch its primary listing from London, possibly to New York, to achieve a higher price tag for its shares.
And on Thursday, the Times reported:
The boss of Rio Tinto has urged shareholders to reject a call from an activist to scrap its primary listing in London, insisting that the move would not be in its best interests.
Rio Tinto, which reported its lowest annual results in five years, has been under pressure from Palliser Capital to collapse its dual UK-Australian corporate structure into a single Australian entity with a primary listing in Sydney.
As the Telegraph notes, the number of UK listings has fallen from 2,429 in 2015 to 1,671 this year. That’s a drop of more than 31%.
Is it the end for London? Or rather, the London Stock Exchange. And what does this mean for investors? After all, does it even matter where a stock has its primary listing? Should an investor even care?
Until recently – especially within the financial publishing business, of which we are a part – there was always a feeling that investors had a strong “home bias.”
That is, they almost always prefer to invest in their home market. An Englishman would invest in English (or British [wink]) stocks, an American in American stocks, and an Australian in Australian stocks.
But perhaps that whole way of thinking has changed. The pandemic probably had something to do with that, when folks were stuck at home… paid for being stuck at home… and so were willing to check out and try new things.
That led to the meme-stock boom and coincided with the crypto boom. When you’ve figured out how to buy and sell cryptos, whether that’s on- or off-exchange, buying overseas stocks is a cinch.
Plus, just two weeks ago, we received an email from US brokerage firm Schwab to inform us it is offering 24-hour, five-days-per-week trading on over 800 US-listed stocks.
That includes every S&P 500 component stock, every Nasdaq 100 component stock, every Dow Jones Industrial Average component stock, and more than 200 individual exchange-traded funds (ETFs).
And why not? With electronic trading and investors worldwide… and with competition from cryptos trading 24/7, it was only a matter of time before stock exchanges started trading around the clock.
As a UK investor, does it matter if there are fewer and fewer London-listed stocks? Not really. For a start, it’s well known that many FTSE 100 stocks generate most of their revenue from non-UK sources.
So, when you buy a UK stock, in many cases you’re buying a share of global revenue. Naturally, there are exceptions. There are also many stocks with mostly UK-sourced revenue.
But regardless, when you set aside the bias of investing in your home market, you realise it’s more important to invest in the best opportunities wherever that opportunity may be. Sometimes that will be in the UK, but other times it will be the US, Europe, Asia or elsewhere.
James Allen’s recent AI Railroad report is a perfect example of this. One of the companies that’s in prime position to potentially profit from the billions pouring into AI, is a market-leading British company… that has its main listing in the US.
Companies may have many reasons for deciding where to list. Mostly, they’ll list where they believe they’ll get access to the most investment capital. For tech stocks in particular, there are few better places than having a New York listing.
The good news is, that shouldn’t shut you out of investing in stocks like that. Most brokers provide access to international stocks – especially the larger stocks.
The days of having home bias are well and truly behind us. As an investor, it’s important for you to invest where you have the best chance to grow your wealth… regardless of whether that’s here or abroad.
Links to last week’s essays below.
Hope you’re having a great weekend.
Cheers,
Kris Sayce
Publisher, Southbank Investment Research
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