Make UK Equities Great Again
UK equities are lagging behind international competitors, but Hugh Sergeant is on a mission to turn that around – complete with baseball caps.
UK Equities are unloved and have been so for years. The UK market sits at a significant discount to many of its international peers, especially the US, and while everyone seems to agree that many UK shares offer excellent value, it is not shifting the dial.
This is a serious issue for all of us, professional investors, retail savers and companies looking to raise equity capital. Growing economies need a healthy stock market.
So I have kicked off a modest one-man campaign to do my bit for turning things around, which I have dubbed ‘Make UK Equities Great Again’ (MUKEGA).
The good news is that quite a lot has already been done to catalyse a UK equities turnaround. The added good news is that there is still a lot more to do.
What has already been done?
Most importantly, we’re facing the music. Change requires people to realise there is a problem. This is very much the case now, everyone in the industry of UK equities recognises there is an issue, and many bright minds are working on solutions.
The politicians are starting to get it too. Different political persuasions inevitably have different solutions, but they have been in listening mode and are now in acting mode. This will help.
Some of the listing and corporate governance requirements for an IPO in London had become uncompetitive, no longer fit for purpose given the very different types of company that are attracting capital today. These are being reformed and London is becoming competitive again.
A change of direction
There is a recognition that the UK regulatory regime became too onerous and reduced economic growth and the competitiveness of our equity markets. Regulators have been asked to consider growth alongside reducing risk, a profound change of direction for all sorts of industries, most notably financial services.
Share buybacks have proved beneficial. By helping themselves to their own equity at low valuations, companies have delivered value creation for their loyal shareholders and offset some of the selling by investment institutions.
So, the climate for a recovery is looking better than it has in years. But a proper sustained improvement in London’s equity market will require more than just rule revisions and political lip service. It needs a sea change in sentiment towards listed equities as an asset class and some confidence and verve in the professionals who contribute to the market – the business-building entrepreneurs and City professionals alike, combined with vocal support from the government. What do we need to do?
As a country we must be proud of wealth creation and recognise that compound interest is one of the wonders of the world. In my mind wealth creation is the basic job of fund managers and investing institutions. If more of us re-engage with this basic belief more money will come into the fundamentally attractive UK equity market.
Renewed excitement and verve should help public equity become more competitive with private, and consign to history the idea that UK equities are somehow stuck in the dark ages. We have a big pipeline of FinTech’s and MedTech’s that are UK based and looking to raise capital, more of them need to be ‘encouraged’ to list here to help create a virtuous cycle. Another way would be to encourage public companies to replicate the successful private equity model, by buying lowly valued public companies and keeping them listed as value is created. Forty years ago businesses like Hanson Trust and BTR made the UK equity market an hugely exciting place, thanks to their swash buckling M&A adventures and outsize returns. We need more risk takers in the public markets to light them up and grab investors’ attention.
As a country we must be proud of wealth creation and recognise that compound interest is one of the wonders of the world
We need to reduce the costs associated with UK equities. The government should look again at removing stamp duty associated with buying UK shares; if needed it could raise the same tax revenue from non-UK assets. The enormous regulatory and reporting burden for companies should also be reduced. Reports should not need to be so long! And we need to reduce the costs for boutique fund managers and stockbrokers to be in business. Do we really want all our wealth to be controlled by US based investing behemoths, or do we like the idea that smaller fund managers and brokers can be nimbler and are better at supporting new emerging enterprises. If the latter, we need to make it easier for smaller firms to thrive.
Last but not least, I’d like to see more flag waving for UK shares. The government should help secure some high profile listings for London and support UK shares with financial incentives for a new generation of investors. This was the reason for the last government’s British ISA. It was PR. UK equities need a lot more of it – and if the new government doesn’t like those ideas it should come up with others, perhaps a UK equity invested sovereign wealth fund to sit alongside the National Wealth Fund. It doesn’t have to be big. It can use relatively cheap sovereign debt. It would make a statement. We believe!
So five areas where change is already happening, and four big areas to work on, all with the objective of ‘Making UK Equities Great Again’ and helping the UK Economy thrive.
The first ten readers to contact CityAM will receive a River Global MUKEGA baseball cap. Please email to [email protected]
Hugh Sergeant is head of value and recovery equities at River Global Investors