In the mid-2000s, when London was on top of finance, NEX broker founder Michael Spencer joked that the statues of two American politicians, Paul Sarbanes y Michael Oxley, should be placed near the London Stock Exchange.
Tough Wall Street regulation had skyrocketed the costs of listing a company, making the British capital a magnet for global money and the gateway to the nascent euro area, an ideal destination for IPOs. .
Now one can imagine executives in Paris and frankfurt reflecting on similar statues by Brexit architects Nigel Farage y Boris Johnson, whose mission to remove the United Kingdom from the European Union and the single market has undermined London’s global supremacy.
Europe has no clear winner
While there is no single European winner here, as the EU has many centers, but none are fully capable of replicating the City, it is surprising to see how recent events have affected the position of the United Kingdom when it comes to attracting global capital.
Ask a European banker where you should list your shares today and London it is not always the first preference. Something change.
It’s difficult to separate the exact impact of Brexit from other factors, but reasons for snubbing London often include the volatility of the British pound, poor performance by UK-listed stocks, and weak market trading volumes. British securities.
Cutouts in the 100 Ftse
The Ftse 100 is down 7% in US dollar terms since mid-2016, worse than its peers. The weight of UK constituents in the top-tier MSCI World index has sunk.
And EU regulators remain firm on cross-border flows after Brexit, imposing new restrictions on trade with the City. That pushed companies like Segro real estate group to a secondary listing in Paris.
This is not a happy situation for the UK, whose prime ministers in the past pressured foreign leaders to bid for the London IPO.
They are seen as a vital sign of a healthy economy and capital market, a source of employment and investment and account for a large share of financial services revenue (a sector that recently accounted for 11% of total UK tax revenue) .
Initial share sales also trickle down to other parts of the banking business.
Funds are fleeing the UK
All of that has been affected. Britain is ranked by global fund managers as its least favorite market in Bank of America surveys.
UK equity funds posted outflows of 12.7 billion pounds ($ 17 billion) between 2016 and 2020, according to the Investment Association, a British trade body.
Economic uncertainty, weak performance, and depressed valuations aren’t exactly big draws for companies raising capital.
Minor problems for the euro zone
It would be an exaggeration to say that the euro zone is booming, but weak market performance and liquidity are less of a problem. Paris, Frankfurt and Amsterdam have seen an increase in stock trading since 2016 as London stalls, according to data from CBOE.
Even with London’s post-Brexit weaknesses, its strengths should not be ignored: In derivatives and currency trading, the City has a stake of over 80% in Europe, according to the New Financial expert group.
A positive trade deal before the end of the year could also help the city regain some of its lost influence, if only to stabilize the pound.
But the euro zone is taking a chunk of London’s market share, and the United States and China look like an even bigger threat. A recent survey of Duff & Phelps ranked New York as the number one financial center in the world above London.
Looking ahead, New Financial predicts that capital markets in Asia will account for more than half of all global activity by 2040.
What will happen now?
Europeans know they have to integrate their various capital markets to take advantage of the Brexit momentum, while the British see opportunities in markets further afield in Asia.
If they can’t find a way to work together to ease the pain of separation, it will be New York and Shanghai that put those statues of Farage and Johnson, perhaps with one of Michel Barnier, the EU’s top Brexit negotiator, in the middle. .
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