London: the world’s stockmarket
London could become home to a truly global stock exchange – but only if we welcome exotic and risky flotations, says Matthew Lynn.
We could have a truly global equity exchange but only if we welcome exotic and risky flotations.
They won't live up to our standards of corporate governance. They will collapse, bringing London's market into disrepute. As the City hosts two major flotations from Kazakhstan and Belarus, and as it connects to Shanghai, the arguments against allowing companies from the "flakier" emerging markets to raise capital in London are so familiar, they practically write themselves. But that doesn't necessarily mean they are correct. In fact, there is a space emerging for an increasingly globalised economy to have a global stock market. London could be it.
Eastern Europe's latest flotations
The latest couple of additions to the London market are certainly not the kind of stocks you can tuck away and forget about. Eurotorg, the largest supermarket chain in Belarus, announced this month its plans to float in London. With more than 600 shops and ambitious expansion lined up, it is likely to have a value of more than $3bn and with a dominant position in a country of ten million people, growing at slightly over 2% this year, there is no reason why it shouldn't do perfectly well.
At the same time, Kazakh nuclear firm Kazatomprom, which produces a fifth of the world's uranium, says it plans to list in London. The company plans to float at least 25% of itself here, with a listing in the Kazakh capital, Astana, too. If all goes well there could be more in the pipeline as Kazakhstan starts a programme to sell off state-controlled assets.
Only a couple of weeks earlier, the Shanghai-London connect system finally became operational after years of planning. This enables companies listed in either city to raise capital and trade equities on either market; some Chinese companies have already set out plans to raise extra capital in Britain.
In an interconnected, globalised economy it is surprising how fragmented share trading remains. After all, we don't have different search engines, social networks, news sources or streaming apps in New York, London, Frankfurt and Tokyo. With most products, one or two global providers emerge. Economies of scale enable them to reduce prices and invest more in providing an excellent product or service. Similarly, it would make a lot of sense if companies from anywhere in the world could list in a single place and investors could pick them on a single trading system.
A truly global market
Of course, it might take time. It has taken many years for countries' regional exchanges to be replaced with national ones. The next step is surely for international markets to eclipse their regional counterparts. Over a couple of decades, a single global stock exchange might well emerge.
The City has an excellent chance of capturing that prize. It has a depth of history and expertise that is unrivalled. It has the protection of one of the most trusted legal systems anywhere and it is home to the global language of business. Leaving the EU means London will be able to shape its own rules, without compromising with instinctively anti-finance politicians across Europe.
Many naysayers fret that governance standards are not high enough. True, there will probably be some scandals. We have already seen some of the Russian companies listed in London caught up in accounting shenanigans. We can't expect every Belarusian or Kazakh company to have the same standards as us.
That said, we have plenty of scandals of our own witness Patisserie Valerie and Carillion. British companies can be just as dodgy as those from anywhere else.
There is always danger in any kind of investment. If there wasn't, there wouldn't be any rewards. But the prize is a huge one. Over time, a globalised world economy will have a single dominant stock market. London can put itself in pole position for that and it can only do so by welcoming companies from around the world.