UK Government Considering Revitalising London Listings

The London Stock Exchange could receive support as the government struggles to align its numbers on spending and income and reverse a historic decline for what was once the world's largest financial market.

The Latest Developments

• Reportedly, UK Chancellor Rachel Reeves is considering adding an exemption to the stamp tax as part of an effort to revitalise London's capital markets.
• Listings in the UK have continued to decline compared to other major financial hubs, coinciding with a global decrease in IPOs due to concerns about economic growth.
• LSEG, the manager of London's capital markets, managed to increase its profits despite the decline in listings, creating a mismatch between its earnings and stock performance.

Unexpected Support for the LSE

After a brief period in the sun earlier this year, , as businesses look elsewhere to find funding. Last year saw the smallest number of companies coming to market in 15 years, and IPO activity in London has fallen below Singapore and Mexico, with the LSE falling out of the top twenty capital markets. Just 9 companies went public in the UK during H1, raising $246 million in capital. While it's true that global capital raising has suffered a slight reversal this year, for comparison, the US saw 227 companies come to market and raise $18.5 billion in the same period. Several London firms have also announced their intentions to delist in favour of New York. Not surprisingly, the stock price of the company managing the stock exchange, LSEG, has declined by almost 25% since the start of the year.

The anaemic capital markets mean less revenue for HMRC, and there are rumours that in her upcoming Autumn Budget. One of the proposals is to provide an exception to the 0.5% stamp duty for a period of three years for newly listed companies in London. Stamp duty is unique to Britain and is often characterised as a burden for companies wishing to list in the UK market. Eliminating the duty would put the UK in line with other markets. However, different countries that don't have the stamp duty are also experiencing a glut in listings, despite having higher numbers of companies coming to market. Out of all the countries in Europe, only Sweden has managed to raise more than £1 billion in the first half of the year.

What About LSEG?

The London Stock Exchange Group operates the stock exchange in Britain, so naturally, its share price has been affected. However, the firm generates most of its revenue from its data analytics division, which contributed to and a 20% increase in EPS during the first half of the year. While the IPOs and listing segment is the most high-profile division of the group, it accounts for only 22% of its income. Data analytics constitutes nearly half of LSEG's revenue, and that is facing a challenge from AI. In an attempt to head off this challenge, the company partnered with Microsoft earlier this year. There are rumours that the company might sell off its increasingly unprofitable capital markets division to focus on data analytics, but LSEG has denied them. Still, the rise in profits is at odds with the decline in the share price, and investors might regain confidence in LSEG if the government follows through with its plan to revive listings in the UK.

LSEG About to Bottom Out?

Despite rising over the past two weeks and forming divergence, LSGE might have a little more to go before it reaches critical support. A cluster combining a psychological level and a trendline support that connects two troughs spanning a 5-year period sits a few pips lower at 8,000. If bulls fail to reclaim the 9k handle and 10k round resistance, a stronger reversal may be seen a little lower. However, if bearish price action accelerates, losing the cluster could see prices decline to 7k or lower. On the other hand, the bottom might be in already.

Source: SpreadEx | London Stock Exchange Group, Weekly