European stock markets need a ”jet pack“
European stock markets – including the UK's – are limping painfully behind the US. That needs to change, says Matthew Lynn
By European stock market standards, the size of the SpaceX initial public offering (IPO) will be breathtaking. The company is expected to be valued at between $1.75 trillion and $2 trillion, and given how frothy Wall Street is right now, it would hardly be a surprise if it went to a substantial premium on its first few days of trading. We can all question the valuation. The Starlink business that now provides internet access on flights is a clear money-spinner and it may be able to break into domestic broadband as well, but the plans for a colony on Mars look, to put it politely, a little optimistic. Even so, this is a huge business and a very successful one, and it has created a huge amount of value in a very short period of time.
It is far from alone. Anthropic, the company behind Claude AI, is reported to be planning an IPO in October, with a valuation of $1 trillion or perhaps more. Its rival OpenAI, the company behind ChatGPT, is also expected to list later this year, with a value of close to $1 trillion. There are slightly smaller companies just behind it. Last week, Cerebras, which makes AI chips, made its debut on Nasdaq, and after a first-day premium, saw its value soar to $95 billion. On the US market, incredible amounts of wealth are being created at dizzying speed. Anthropic is only five years old, OpenAI is ten (its profit-making unit only five) and although SpaceX was founded in 2002, it only really got going a decade ago.
The contrast with European stock markets is painful. SpaceX by itself will be worth almost as much as the whole of France's CAC-40 (valued at €2.6 trillion and falling rapidly as the value of LVMH slumps). It will be getting close to the entire value of Britain's FTSE 100, currently valued at £2.4 trillion, and SpaceX and Anthropic combined will certainly be worth more than all of the UK's 100 largest companies put together.
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European stock markets need more mavericks like Elon Musk
The reason is clear. Very few new firms are being created. If you exclude mergers, the newest company on the CAC-40 is Eurofins Scientific, which was formed in 1987. Even where there are new companies, the best ones choose to list on Wall Street – the Cambridge-based chip designer ARM, for example, is now worth $220 billion, which would rank it as the third largest in the FTSE 100 if it had decided to list here.
Europe, including the UK, needs to realise how far behind it has fallen and start working out how to turn that around. First, it should radically reduce the taxes on start-ups to encourage more entrepreneurs. Britain has scaled back the break on capital-gains tax that anyone who started a new company used to benefit from, and most of Europe never had any concessions to start with. Instead, there is a constant stream of new wealth taxes and capital-gains taxes, with the Netherlands extraordinarily planning to tax capital gains before they have even been cashed in. No wonder there are far fewer start-ups and hence fewer giants ever emerge.
European stock markets should also roll back restrictions on growth industries such as AI and space. While the US has a booming space industry, Europe has a Space Act; while huge new AI businesses are created on the other side of the Atlantic, Europe is stuck with an AI Act. But there is no point in having a regulator if there isn't an industry to make rules for. There is still little sign that politicians in either Brussels or London realise how much damage has been done by trying to regulate industries before they have even begun.
Finally, Europe should relax the listing rule for entrepreneurs such as Elon Musk who want to keep control of companies. SpaceX will come in for a lot of criticism for allowing Musk so much control over the business and the $1 trillion pay package if he manages to create a thriving human colony on Mars. It doesn't follow Europe's governance rules. But so what? Entrepreneurs are often a little odd, and they are often control freaks, but they also have the drive and ambition to create huge new businesses. Europe could use fewer rules and more mavericks if it is to avoid turning into an investment backwater, with nothing more than a dull collection of very old companies.
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