A desolate report into flotations and a plunge in assets at a brace of big-name funds rang alarm bells across the City today over the dearth of dealmaking and stagnating demand for UK stocks.
London slumped to third place in the league table for initial public offerings in Europe – falling behind Istanbul and Milan – according to rankings compiled by PwC, the global accounting giant.
IPOs are a vital part of the City’s ecosystem, with jobs at its range of law firms and banks depending on them. PwC found that London’s seven flotations raised £561 million in the first half of 2023. That put it in third place. The overall leader was Istanbul, where 21 IPOs raised the equivalent of £1 billion. Milan’s Borsa Italiana, was second, with £940 million raised by 9 IPOs.
PwC said called the overall level of market activity “muted”, citing the impact of “rising interest rates, stubborn inflation and valuation concerns from investors.” Across Europe, IPO proceeds slumped 27%, raising €3.8 billion (£3.3 billion).
Then came an update from Liontrust – one of the City’s best-known names – which described the UK stock market as being “out of favour”. It revealed that £1.6 billion flowed out of its funds in the three months to the end of June, while assets under management and advice were down 6% to just under £30 billion.
Its CEO, John Ions, said: “In a risk-off environment, our strong focus on equities has proved to be challenging.”
After that, emerging market specialist Ashmore reported net outflows from its funds of $2.9 billion, as institutional clients reduced their exposure to debt markets, while flows in equities were “flat”.
Mark Coombs, CEO said: “There remains some global macro uncertainty and certain investors have therefore reduced risk,” although he expected support for emerging markets from “falling inflation and the potential for rate cuts, as well as the benefit of a weaker US dollar.”
The bleak year for companies making their debut on the stock market has reverberated across the Square Mile and Westminster, with politicians and regulators scrambling to make the process easier and to unlock available capital to secure better valuations.
Chancellor Jeremy Hunt this week outlined plans to encourage pension funds to invest in early-stage companies in his annual speech to the City at the Mansion House, in plans to bring £50 billion into London markets by the start of the next decade.
But with UK inflation looking stubbornly high, there are concerns Bank of England rate hikes have further to run, putting London stocks at a disadvantage.
Joshua Mahony at Scope Markets said: “Until UK inflation can be brought under control, there is likely to be significant caution for investors over how high rates will go and the implications for the economy.”
