A recent year-end report by Bloomberg found London FTSE indexes underperformed compared to their global competitors in 2023. They used the US$ for ease of comparison, and I’ll also use an American term to describe both the FTSE 100 and FTSE 250 performances in 2023; they sucked. The London Stock Exchange needs to get off the bench and proactively embrace the digital asset revolution to harness our growing digital asset economy.
The US S&P topped the list up 22%, Euro Stoxx 50 +21%, Japanese Topix +14%, and Germany, the only G7 country to go into recession in 2023, saw its DAX Index up 19%. The FTSE 100 and 250 managed 9% and 4.9% respectively. The 2022 statistics showing the highest percentage of foreign ownership of UK equities on record (58%) and the lowest ownership by UK pension funds and insurance companies at 4.2% (down from 46% in 1997) are likely to stay the same in 2023. UK IPO intentions have become a business journalist blood sport.
Digital assets offer London as a global financial capital an opportunity to dominate a rapidly growing market. Digital currencies (or crypto) have had a good year – with over 3.3 million UK owners joining 420 million+ global owners by mid-2023. The crypto market is up 68% in 2023. Bitcoin saw a price rise of 150% this year, with an average $25 billion in daily trading volume; that is a rising tide that can lift many digital currencies. Last week, Institutional Investor published its Outlook Report for Digital Assets, and there are some interesting findings among the 250 institutional investors canvassed.
The top three concerns were volatility (63%), ESG considerations (44%), and asset security (41%.) Two-thirds determined that the key driver for digital currency growth would be ‘real-world applications and tangible economic value,’ and close to half said the impending Spot ETF approvals (offering investors direct exposure to cryptocurrencies without having to purchase and manage the underlying assets directly) would ‘unlock the industry.’ Digital currencies were ranked only behind private equity and US equities in a list of 15 asset classes representing the best opportunities for risk-adjusted returns over the next three years.
For full disclosure, my company launched a digital currency this month with a real-world application. I have been a financier in London for 30 years and have seen many new investment vehicles and types of investments. None offer the benefits of a digital currency; if they did, I would have used them. According to Crunchbase data, cryptocurrency was the number one new sector for start-ups in the EU in 2023. The UK is quietly becoming a powerhouse for the digital currency economy, with over 30% of all European start-ups in the crypto sector in 2023 emanating from the UK and London specifically (followed by Manchester and Cambridge). The rise of the digital asset economy and the UK’s European dominance in its largest start-up sector can’t be ignored.
As much as it may be dressed up as failures around reforming regulations, the UK equity market and the UK IPO market have suffered due to better value being found by institutional investors elsewhere. Reviving corporate UK by compelling pension and insurance funds to invest in UK equities and ditching regulation seems counterintuitive. I don’t think it’s too naïve to believe that funds would buy UK equities if they saw value.
The London Stock Exchange (LSE) should embrace the opportunity by creating a regulated and investment-safe environment for this critical sector to grow in the UK, particularly focused on the demands of ‘real world applications’ in line with institutional investors’ top ask. Right now, the LSE reminds me of the best blacksmith in Chicago, just as Henry Ford rolled up in 1903, muttering, ‘Nah, that’ll never catch on.’
Professor Stefan Allesch-Taylor CBE FKC FRSA is Professor of Practice at King’s College London and Chair of the Kaldi Foundation.
