How to save the dying UK stock market

The UK stock market is in long-term decline. To fix that, we must first recognise why equity markets exist and who they should serve

High Angle View of Paternoster Square and UK stock market London
(Image credit: Getty Images)

It is now widely acknowledged that the UK stock market is suffering an existential crisis. UK equity funds have seen 36 months of consecutive outflows that show no sign of slowing. A record £2.7 billion fled the funds in October, according to data from funds network Calastone. Given the market’s recent performance, that can be no surprise. Since the peak of the internet bubble, the S&P 500 has quadrupled, while the FTSE 100 is up by just a fifth.

Some of this decline reflects a shift from domestic investing towards global benchmarks, as well the success of large US fund managers such as BlackRock, which has $11.5 trillion of assets under management (AUM). At the turn of the century, UK pension funds held 40% of their assets in UK equities. This has now fallen to less than 5%, as the pension funds have shifted their allocation towards global equities, as well as unlisted private-equity vehicles and fixed-income instruments such as government bonds. In this world, it is tempting to conclude that where a company is listed doesn’t matter: if we can readily buy US-listed stocks, the steady decline of London is largely irrelevant.

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Bruce Packard
Contributor

Bruce is a self-invested, low-frequency, buy-and-hold investor focused on quality. A former equity analyst, specialising in UK banks, Bruce now writes for MoneyWeek and Sharepad. He also does his own investing, and enjoy beach volleyball in my spare time. Bruce co-hosts the Investors' Roundtable Podcast with Roland Head, Mark Simpson and Maynard Paton.