A safe port in a storm

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High yields, high inflation, high interest rates, high prices – the consequences of pestilence and war are wreaking their effect on the world’s economies and global markets. There is hardly a country that has not felt the impact. Since 2021, all stock markets globally have suffered a slide in listings: London is by no means alone.

As we round-out 2023 and look towards a new year, geopolitical and economic turbulence has worsened. New wars have started creating new axes of geopolitical tension; there is increasing nervousness about the level of debt in the Chinese economy and in its real estate market in particular; as well as mounting concerns about the strength of the US economy. Investors across the board are understandably nervous.

Asset management companies and fund managers are announcing disappointing figures. Schroders has reported that the value of its assets has fallen, and Man Group and Jupiter Fund Management say that money is flowing away from funds. Retail investors are using their savings to pay down debts and pay off their mortgages, or are taking advantage of higher interest rates and keeping their savings in cash. It seems unlikely that there will be any significant change in the direction of the economy any time soon.

Despite the talk of regulatory reform reinvigorating London’s competitiveness, London markets have gone south over the last year. On AIM, values, trade numbers and volumes are all down on the first half of the year. The number of companies overall on AIM has dropped and in particular, the number of international companies present on the market has dropped steadily and significantly over recent years. The figure for new and further money raised makes grim reading – it is the lowest since 2003.

But the solution isn’t necessarily to go west. Many of the UK companies that shunned AIM to list on Nasdaq such as, and online car retailer, Cazoo Group which floated in 2021, have had a horrid time, with some facing bankruptcy (when they might not had they remained in London). In late September 2023, Cazoo’s share price was down over 99.5 per cent compared to its IPO value and earlier this year, the New York Stock Exchange began the process of de-listing warrants as a result of its “abnormally low” price. The allure of SPACS attracting UK technology companies and others to the NYSE appears to be losing its attractiveness. More SPACs have liquidated than completed a transaction this year and there have been only 17 SPAC IPOs so far in 2023. Many UK companies that “SPAC-ed” on the NYSE have lost a significant proportion of their values in market sell-offs – some are worth only ten per cent of their original valuations, and have underperformed compared to their US counterparts. Electronic vehicle company, Arrival, Wejo, Babylon Health and Paysafe, are just a few of the worst performers.

Against this depressing back-drop, the current thinking is that it’s unlikely many UK companies will commit to an IPO or an additional round of financing until after the next General Election which, Sir Keir Starmer would have us believe, will be either in the Spring or Autumn 2024, but could be as late as January 2025. That would mean a whole year of the market just ticking over. No wonder then, that the Big 4 accountancy firms have announced redundancies. Although ostensibly the result of over-hiring post-pandemic, it also speaks to the state of the main London market.

So, should we all just give-up and sit on our hands for the next year? It is always difficult to predict the direction of the markets; to know when to buy, or sell, or IPO, and the global turmoil makes the choice of market as well as the timing of plans, even more fraught. Companies are biding their time in the hope that 2024 will see the resolution of conflicts, a steadying of the economy, and a resetting of the political dial on both sides of the Atlantic for another five years. Things can only get better, right?

David Schwimmer, the chief executive of London Stock Exchange Group said in a recent trading update that pent up demand to list in London was mounting among companies once market volatility recedes. Apparently, the pipeline is building.

Companies and their advisers should plan with care. Frequently, such decisions are made by looking at the short-term rather than longer-term trends and outcomes, and as a result, nearly always miss the sweet spot.  Management should use this hiatus to get their ducks in a row and be ready to go quickly as soon as a bit of confidence returns to the market. Companies that wait to see signs of a recovery before turning on the taps are likely to find they are too late.

Investors need to put their money somewhere. Risk investors looking for 25 percent returns have very few options at the moment and will always take a punt on a promising looking company, while more timid investors will stick with the six percent standard rate of interest they can get from their banks.

If you believe in your product, go for it! It’s far better to have a funded business than no business at all. Perhaps London’s gold-plated standards are a benefit rather than a draw-back in these unpredictable economic times. London looks like a pretty safe port in the current storm.

This article was originally published in the Q4 2023 Corporate Advisers Rankings Guide. For more information, please contact Mark Ling.