PRESIDENT Trump promises a new golden age but US stock markets have already been living through one. Powered by the Magnificent Seven, the US accounts for two-thirds of the MSCI All-Country World Index and investors continue to throw money at it like the tech entrepreneurs who queue to pay obeisance at the White House.
The trend must reverse sometime. Certainly the deep discounts on quality stocks available in the UK, which can project itself as a common sense country at this time of great geopolitical upheaval, are bound to be catching the eye of contrarian investors. But Wall Street’s propensity to suck up multinationals with the promise of sweetening their share price means anyone else in the capital markets game has a fight on their hands.
London is alive to the challenge and has plenty going for it, with recent listing reforms still to bed down and more to come around prospectuses and pensions. Efforts to further internationalise are clear. Chinese fast fashion giant Shein would make an interesting addition to the FTSE 100, where constituents may soon not be required to trade their stock in sterling.
And yet in the week the Chancellor makes a big speech to underline her pro-growth credentials, I can’t help thinking we are missing the main chance. Competing for corporate goliaths is fine, but Nvidia won’t relist here anytime soon. Much better to focus on an area where the US capital markets simply can’t compete: small companies.
Not all acorns grow into mighty oaks, but all big companies start small. For any venture worth less than several billion dollars, the US markets rule themselves out because of prohibitive underwriting fees, legal and insurance costs. It’s valid to fret about UK start-ups looking abroad for growth capital. But how many more could be drawn to these shores if the City of London mobilised and marketed itself as the world’s growth exchange?
Despite the de-equitisation drag, there are grounds for optimism. Last year was a tough one for IPOs but it was noticeable that of the additions to the AIM growth market, five were American companies.
We can do better. Look on it as another “Wimbledonisation”, a term coined before Sir Andy Murray’s time by the tennis-mad Bank of England Governor Sir Mervyn King to describe how the Square Mile had evolved since Big Bang by hosting numerous overseas winners.
At the centre of this new revolution could be AIM, which is described by its owner, the London Stock Exchange, as a crown jewel. How to give it more sparkle? One of our current research streams at the Quoted Companies Alliance is the QCA AIM Commission, a project led by a set of experienced directors to assess what AIM offers, what it lacks – and what it needs if it is to support growth companies for another 30 years. AIM’s 18,000-word rulebook will also be scrutinised, as will the audit industry, in another piece of work to see how books checkers can better support UK economic growth and companies typical of our membership.
What AIM and its users also need is capital. There are obvious measures, such as getting the British Business Bank to back public companies, not just private ones, and the embracing of quoted companies by the 11 Mansion House Compact signatories as part of their agreement with the Lord Mayor to sink at least 5% of their defined contribution funds into unlisted equities.
But if London is to become a global growth hub, it must attract money for smaller companies from across the globe too. Currently, international investors account for about half as much of AIM as they do of the Main Market. That’s why targeted initiatives are needed. And better indexation – another form of marketing really – could capture more passive money. Can FTSE Russell, the LSE’s sister company, help fly the flag?
One useful addition could be PISCES, a sometimes-public market for private companies, as long as it plugs into existing markets infrastructure and builds the IPO pipeline. Challenger exchange Aquis, under new Swiss ownership, could also drive competition.
To succeed demands a change of mindset. Many capital markets reforms are welcome but too few view life through a small company lens, where resource is tight but ambition limitless. That’s usually because these efforts are steered by City grandees blind to life outside the FTSE 100.
We must spin this mission on its head. Don’t make growth markets the afterthought, to be turned to when the blue chips are content. Don’t assume a rising tide of policy changes – such as pension consolidation or, when it comes, ISA reform – will lift all boats including the smallest and most potent. And don’t marginalise the views of those that live and breathe this world – the company bosses striving at the coalface, their advisers and committed investors. There is a good chance they know what they are talking about.
Let’s tear down costs and excessive regulation and build a can-do narrative around our markets that already exists internationally for our life sciences and creative industries. If London really wants to think big we should start small. Grow our own world beaters. And become a magnet for many more as the capital of growth capital.
James Ashton is Chief Executive of the Quoted Companies Alliance.
