No one wants to list their stock in London

London and New York have long been seen as the financial capitals of the world, but in recent years, the American finance hub has grown larger and larger while England’s capital city has fallen behind. Nowhere is this trend more evident than in companies’ primary stock-market listing decisions. Over the weekend, the Financial Times published a piece on the exodus of companies from the London Stock Exchange for a New York listing:

“The London Stock Exchange is on course for its worst year for departures since the financial crisis, as fears mount that more FTSE 100 businesses will quit the UK in favour of New York.  A total of 88 companies have delisted or transferred their primary listing from London’s main market this year with only 18 taking their place, according to the London Stock Exchange Group.

This marks the biggest net outflow of companies from the main market since 2009, while the number of new listings is also on course to be the lowest in 15 years as initial public offerings remain scarce and bidders target London-listed groups.”

In total, companies worth ~14% of the total value of the FTSE have ditched the London exchange for overseas listing since 2020. There are some structural reasons for the move. One example is London’s Stamp Duty Reserve Tax, which requires investors to pay a 0.5% tax on transactions when buying UK shares in a company. Per the FT, companies also cited deeper investor pools and better liquidity in New York than London.

However, this is a macro story as much as it is an exchange-specific one. London is the largest financial center in Europe and New York is the largest financial center in the US, both representing their respective capital markets. The US economy and capital market are much stronger compared to Europe than they have been historically, and money is going to flow where it’s treated best.

In 2008, the eurozone and the US had virtually identical GDPs: $14.2 trillion and $14.8 trillion. In 2023, those values were just over $15 trillion for the eurozone vs. $26.9 trillion for the US. The eurozone, adjusted for inflation, has had almost no growth, while the US economy has almost doubled. On a GDP-per-capita basis, Italy is neck and neck with Mississippi, the US’s poorest state, and Germany lies somewhere between Oklahoma and Maine (38th and 39th).

Between 2010 and 2023, the cumulative GDP growth rate in the US was 34%, while it was just 18% in the eurozone, and labor productivity over that period grew by 22% in the US and just 5% in the eurozone. As you could probably guess, US stocks have also outperformed: since 2000, the S&P 500 has returned 7.64% per year, while the FTSE 100 returned 4.15% (in USD, or 4.83% in British pounds).

Basically, the US has just been a better market to invest in since the financial crisis, so it shouldn’t be a huge surprise that companies are opting for New York listings instead of London listings. New York is where the money is.

The risk, for London, is that this trend can form a dangerous flywheel: as more companies opt to list in New York instead of London, investors have even fewer reasons to invest in London over New York, leading more companies to list in New York instead, and the cycle could accelerate. I’m not envious of London Stock Exchange Group execs right now.