The number of companies on the London Stock Exchange which are effectively subject to a takeover or a potential takeover is incredibly concerning and underlines just how undervalued the UK stock market is compared to other markets. We are losing a lot of British-based companies and risk losing more.
The US buyers and potential buyers are not paying over the odds for the UK companies that they are acquiring, they are paying what they believe those companies are truly worth. That’s to say, a great deal more than the value of their shares would have you believe. While there has been an increase in the value of the market, with the LSE hitting a series of record highs, the pace at which company share prices are catching-up to a more realistic valuation is slow. In the meantime, US acquirers are making hay.
The more buy trades are made the more share prices go up – that’s how market forces work, right? But the very high volumes of dark trading, as reported recently in The Times, could be having a negative impact on the efficiency of the UK stock market by potentially obscuring the real picture of the volume of trades taking place and prices being paid. Visibility is important on the markets. If shares in one company are seen to be attractive then other investors will jump on the band wagon and want to buy shares in that company, too, pushing-up the price. A perceived lack of transparency could lead to concerns about the efficiency of the market and may be a contributary factor to the undervaluation of UK companies.
High levels of dark trading could also be contributing to volatility in the market which is a disincentive to investors both institutional and retail, who may choose more stable investment options instead. Anecdotally, some companies have seen more market volatility on their shares in one day than they used to see in a typical year (that’s to say after the financial crash but before Covid). Investors, especially new investors, want transparency. Bouncing stock prices will naturally cause uncertainty and risks deterring investors who are thinking about engaging with the market, especially the more cautious. The LSE will undoubtedly want to resolve these issues, but there are unlikely to be any quick fixes.
The undervaluation of the UK’s stock markets comes at a time when there is a lack of concrete encouragement on the part of Government, despite its rhetoric, towards growth and wealth creation.
There is a mixed message from Government which is off-putting to investors and potential investors. While it wants businesses to grow and develop (in order to maximise tax returns), at the same time it entertains the possibility of additional direct taxes – a potential wealth tax, and profit taxes – that would naturally hinder that growth.
The Government (under both old and new management) is in an understandable tight-squeeze, needing to rapidly increase tax revenues in order to fund urgent new investment in defence or building new prisons, for example. However, if the UK continues down this muddling path, it could see the same results that are being seen in Scotland where an increased tax burden, particularly on high-earners, has resulted in falling revenue – a Laffer Curve, as reported recently in the Washington Post. It is to be hoped that instead, the new Prime Minister will listen to his external economic advisers and avoid this outcome.
The Government needs to send a clear and positive message about growth, not through words but by putting in place concrete measures that encourage investment. Counterintuitively, that may mean cutting taxes rather than increasing them. Some experts have suggested that some relatively simple changes would almost certainly result in increased revenue, such as reducing the bands for income and corporate taxes which would encourage more people to come to the UK (and pay tax).
The privatisation of the UK’s utilities in the 1980’s drove a level of UK household share-holding activity that hasn’t been seen since. There was a far greater interest and engagement in the UK stock market by the general public and a belief that everyone could participate and benefit from the investment opportunities. The Government could try to recreate that optimistic and patriotic feel-good factor by generating a bit of excitement about wealth creation options among the general public.
We need to encourage people to invest in the UK and to invest in the UK stock markets where we have a great set of market-leading British companies. The flip-side of the undervaluation of these British (and other) companies on the UK stock markets is that share prices are lower than they should be for everyone – not just US acquirers. There has never been a better time to encourage the general public to invest in the London stock market. The only way is up!
This article was originally published in the August 2026 Corporate Advisers Rankings Guide. For more information, please contact Joseph Archer.
