London’s IPO drought deepens but could Trump’s tariffs shake things up?

The London Stock Exchange faces increasing challenges in attracting IPOs, highlighted by Wise's plan to move its primary listing to New York and Cobalt Holdings scrapping its London IPO. IPO proceeds on the LSE fell to £100 million in Q1 2024 from £300 million a year earlier, contrasting with a more robust U.S. market, though global IPO volumes are down overall. Some analysts suggest that diversification away from the U.S., potentially driven by trade policies, could shift investor focus back to European and U.K. equities, offering a potential boost to U.K. IPO activity.

Analysis

The London Stock Exchange (LSE) is confronting a marked decline in its attractiveness for Initial Public Offerings (IPOs), highlighted by British fintech Wise's announced plan to move its primary listing to New York and metals investor Cobalt Holdings' decision to scrap its London IPO. This trend is further emphasized by reports that Chinese fast-fashion giant Shein is considering Hong Kong over London for its public flotation. According to EY data, only 18 companies listed on the U.K. stock market in 2024, a stark decrease from 119 three years prior, while PwC figures show Q1 2024 IPO proceeds on the LSE fell to £100 million from £300 million year-on-year. This contrasts with the U.S. market, which, despite a 10% year-on-year global decline in IPO volumes in 2024, raised $27.6 billion from new listings, securing the top global position for the first time in three years. Russ Mould of AJ Bell notes that while the FTSE 100's share price performance may have surpassed U.S. indices this year, the broader U.K. market faces reputational challenges due to scarce IPOs and companies seeking higher valuations Stateside. However, some analysts, like Chris Clement from BRI Wealth Management and Mark Williams from Datasite, posit that increasing U.S. trade policy uncertainties and a potential investor diversification away from U.S. exceptionalism could redirect focus and capital towards European and U.K. equities, potentially bolstering U.K. IPO activity.

Key Decisions for Investors

• Investors should exercise caution with U.K.-centric IPOs given the prevailing negative sentiment, declining listing volumes, and recent high-profile intentions to list elsewhere, reflecting diminished capital raising on the London Stock Exchange.
• Actively monitor shifts in U.S. trade policies and global investor asset allocation, as a potential diversification away from U.S. equities could signal a future revival for U.K. and European markets, including IPO activity.
• Irrespective of the listing venue, maintain rigorous due diligence for any IPO, thoroughly assessing the company's competitive landscape, management expertise, financial stability, and valuation to ensure the risk-reward profile is favorable.