The UK's stock market is in a state of flux, with a worrying trend of companies being taken over by foreign bidders, while new listings are scarce. This is a critical issue, as a stock market is meant to be a vital conduit for capital to reach wealth-creating assets. The current situation is not healthy, and it's time for a change. Personally, I think the UK government needs to take a more proactive approach to boosting the London stock market. What makes this particularly fascinating is the contrast between the number of takeover bids and new listings. Since the start of 2023, there have been 154 bids for UK companies with a market value of more than £100m, adding up to £165bn of stock market capitalisation. In comparison, there have been only 11 new listings in London of companies worth £100m-plus, representing a combined £6bn of capitalisation. This lopsided nature of the market is a cause for concern. One thing that immediately stands out is the fact that the UK market is underpriced by international standards. Boards are under pressure to sell, and liquidity is gravitating towards New York, especially for firms in the sub-£10bn bracket. What many people don't realise is that the UK government has already taken some steps to address this issue, but these measures have not been effective. The UK listing rules were changed to allow founders to retain outsized voting power, and there have been consultations and taskforces, but these have not made a significant difference. From my perspective, the problem is that the UK market is wide open to bidders, and it's underpriced. This raises a deeper question: why is the UK government not doing more to boost the stock market? One possible answer is that the current economic priorities of the government are not aligned with the goal of reviving the London market. The chancellor's definition of 'productive assets' is skewed towards infrastructure and privately owned assets, with public markets barely getting a look-in. This is a missed opportunity, as boosting 'scale-ups' can also happen in a vibrant stock market setting. If you take a step back and think about it, it's clear that the UK pension system plays a crucial role in investment decisions. In a stock market context, it requires the politicians to see there's something worth boosting. A detail that I find especially interesting is the fact that prior to 1997, the UK's dividend tax credit regime favoured pension fund investment in UK companies. This suggests that the pension system can be used to channel more capital into UK firms. What this really suggests is that the UK government needs to take a more proactive approach to boosting the stock market, and the pension system can be a key tool in this process. In my opinion, the government should consider a range of measures, such as a 20%-plus UK weighting in default defined contribution pension schemes, a minimum UK weighting for Isa tax breaks, and capital tax reliefs for entrepreneurs listing in London. These measures could help to correct the 'home bias' that currently distinguishes the UK pension system from others around the world. In conclusion, the UK stock market is in a critical state, and it's time for the government to take action. The current hollowing-out is not healthy, and the government needs to do more to boost the market. By taking a proactive approach and using the pension system as a key tool, the UK can revive its stock market and create a more vibrant and healthy economy.
