THE LONDON MARKET: THE GOOD AND THE BAD

14.04.2023 There is growing angst about the inability of the London Stock Exchange to attract high profile Initial Public Offerings (IPOs). Below we look at the pros and cons of the London market.

A number of high-profile investors have been critical of the type of companies listed on the London stock exchange. They have argued that the inability of the London market to attract high profile IPO has led to a dearth of technology focused growth companies.

The main weakness of the FTSE All Share is indeed that it only has a 1 percent weighting in technology. This reflects the lack of successful technology IPOs but also the tendency of promising British technology companies to be bought by overseas competitors. During the age of digital disruption and transformation, of one industry after another, this is a glaring weakness. As a result, wealth managers would seek to gain exposure to the sector by investing overseas.

However, the London market does have its own strengths. It should be noted that technology, as a sector, is extremely difficult to invest in successfully. This is because it tends to be “winner takes all”, so many of the less successful companies turn out to be worth very little.  Instead it has some very successful industrial and chemical companies. These companies operate in slightly slower growing markets where their ability to spend on research and development strengthens their competitive offer and deepens the economic moat around them. By using this business model these companies have been able to steadily grow profits and dividends for many years.

So, whilst the London market is critically lacking in technology companies it does have some world class companies that have developed their own intellectual property over many years. These have provided exceptional returns to buy and hold investors and form the bedrock of our portfolios.

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin