London’s index of UK-focused firms is set to shrink this year as fears grow over the ‘fragile’ state of Britain’s stock market.
Concerns the stock exchange is being hollowed out are such that one senior City figure recently warned the Treasury in a private meeting that it is ‘a quarter to midnight’ for the London market, The Mail on Sunday understands.
However, attempts to solve the problem have divided the Square Mile, with plans to force pension funds to invest more in UK stocks drawing a backlash from some investment managers. It came as analysis by broker Peel Hunt showed how far the FTSE 250 – the engine-room of UK-focused stocks – had been depleted by share buybacks and takeovers.
Taking those into account would mean that, despite a headline rise of 3 per cent so far this year, the index’s market capitalisation has little changed.
‘Fragile’: Analysis by broker Peel Hunt showed how far the FTSE 250 had been depleted by share buybacks and takeovers
If a series of pending takeovers worth £15 billion – including of scientific instrument maker Spectris and financial firm JTC go through – it will be down 4.5 per cent. They are among £28 billion of FTSE 250 takeovers that are completed or pending this year, despite hopes that a clutch of new initial public offerings (IPOs) – of Beauty Tech, Shawbrook Bank and tinned tuna maker Princes – could herald a revival.
A relentless outflow of money from UK-focused equity funds is blamed. Last year £33 billion of FTSE 250 firms were gobbled up.
Charles Hall at Peel Hunt said that was ‘putting pressure on valuations and increasing the risk of takeovers’, adding: ‘Though it’s positive to see the three listings, the reality is the IPO market will remain fragile unless we increase investment. This is vital if we want companies to be founded, grow, scale and IPO in the UK.’
Hall backs reforms including limiting the cash element that can be put into tax-free Individual Savings Accounts (ISAs), removing stamp duty on share purchases, and forcing default defined contribution pensions to invest 25 per cent in UK assets.
The latter won backing in a letter from 260 business leaders to the Chancellor this month. But Tom Selby at investment platform AJ Bell said: ‘The danger is that the vested interests of the City push pension funds in an investment direction not in the interests of members. Default funds are not for propping up listed companies in the UK.’
Another industry insider said ‘we don’t think it’s necessary’, arguing Government reforms designed to build a positive case for investing in the UK were already starting to work.
‘We think there is enough momentum without needing this,’ the insider added.
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
Freetrade
Freetrade
Investing Isa now free on basic plan
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
Compare the best investing account for you
#Fragile #FTSE #hollowed #takeovers
