The prosperity of the London Stock Exchange has become increasingly essential to the economic wellbeing of the United Kingdom in the wake of Brexit and the Covid-19 pandemic. It’s for this reason that the city must act quickly to shake off its ‘dinosaur’ image.
The Guardian recently reported the extent of criticism that the LSE has received, with global investors likening the market to a “global backwater” which has found it difficult to lure in the type of growth companies that ignite investor interest.
Following a flurry of relaxed regulations and a series of promising IPO debuts like that of leading tech firm Oxford Nanopore, the year ahead certainly looks brighter for London, but will it be enough to attract the major market players that it craves?
At present, just 2% of the FTSE 100 index is comprised of technology stocks. This figure is alarmingly low in comparison to the 20% average across global markets.
Simon French, chief economist at Panmure Gordon, notes that this makes London “tenfold underweight in the part of the economy growing faster, and which is attracting high valuations.”
“If you’re an investor looking to invest in growth, you haven’t got a lot of options on the UK public market, with the greatest respect to Sage and Micro Focus.”
As the performance of the FTSE 100 shows, the LSE has performed well in recovering from the Covid-19 global stock market crash of early 2020. The past year has seen the market climb nearly 12% despite the latter stages of 2021 being hampered by record-breaking inflation leading to growth stock sell-offs around the world.
With this in mind, let’s take a look into whether 2022 can become a key opportunity for London to make strides in shedding its ‘dinosaur’ image:
Easing Listing Regulations
Regulators have been eager to improve the appeal of the London Stock Exchange as a means of attracting new tech firms to list in the city.
In December, Britain’s markets watchdog announced that new rules had been introduced to boost London’s role as a global centre for listing companies. The move has been orchestrated in a bid to catch up with cities like New York whilst fending off competitors from the European Union.
Rule changes were put to public consultation earlier in 2021 and their implementation allows a targeted form of dual-class share structures in premium listings for five years. The move helps to enable company founders to maintain an element of control over their business.
The relaxed listing rules will emulate the New York Stock Exchange which has a rich history of attracting tech companies.
According to the new rules, a minimum of 10% of a company’s shares must be in public hands as a free-float – a move down from the 25% minimum requirement prior. Additionally, the minimum market cap for both premium and standard listing segments will grow to £30 million from £700,000 – a figure that’s significantly lower than the £50 million originally proposed.
“We need to act to meet the needs of an evolving marketplace,” explained Clare Cole, director of market oversight at the FCA.
The more relaxed listing rules introduced are set to provide business founders with considerably more control over their companies despite them going public by allowing greater proportions of institutional investment. In doing so, it’s hoped that more tech firms opt to list in the UK rather than take their company to the US.
Bright 2022 on the Horizon
The debut of Oxford Nanopore technologies represented a bright moment amidst a flurry of listings for London. However, not all newcomers have enjoyed prosperous LSE debuts.
The long-awaited listing of online food delivery company Deliveroo was heralded as a coup for London, but the stock struggled to impose itself on the market before entering 2022 more than 37% below its initial listing price.
Cybersecurity firm Darktrace initially looked like an excellent example of the LSE’s push towards accommodating more modern stocks, but after a rally of more than 200% over the summer, DARK stock shed 55% of its value in a harsh correction.
Despite mixed fortunes across 2021, Maxim Manturov, head of investment advice at Freedom Finance Europe, believes that 2022’s range of IPOs may breathe new life into the London Stock Exchange.
Forward-thinking businesses like The Hut Group Beauty, Raspberry Pi and Huel are all likely to debut in 2022, and Manturov believes that “Huel can be considered one of the UK’s most promising start-ups, which has a huge social media audience, allowing the company to appeal to young consumers who place a high value on good nutrition and fitness.”
London may still be waiting for a fresh arrival of one of the tech landscape’s true big hitters, but the city’s 2022 prospects look set to be a significant step in the right direction away from its ‘dinosaur’ connotations and towards recognition as an exchange that’s ripe for opportunity among bright new startups.