Simon English
Fri, 15 March 2024
Money is flowing out of the London equities at a faster pace than ever, despite government efforts to boost the stock market.
According to Investment Association recent figures UK savers took £14 billion out of UK equities last year, the eighth consecutive year of outflows.
New research by SCM Direct for the Evening Standard suggests this situation is getting worse rather than better despite some experts insisting London shares are now so cheap they represent a buying opportunity.
SCM looked at money flowing through Exchange Traded Funds, an increasingly popular tool for both small investors and large institutions.
Net retail sales of funds investing in UK equities (Evening Standard - data from SCM Direct)
Of 17 European countries, only four – Austria, Norway, Germany, Holland – have seen greater percentage outflows of money this year. The largest UK equity ETF is the iShares Core FTSE 100 ETF which has a massive £14.8 Bn invested in it – this compares with the largest US Equities ETF worldwide, the SPDR S&P 500 ETF that holds $507 Bn in assets.
Alan Miller of SCM Direct said: “Europe as a whole has seen money coming in not out. This is part of the reason for the abysmal showing of the UK market this year – the FTSE 100 is up just 0.2% vs +10.6% for the Euro Stoxx 50.”
Miller adds: “There are some underlying fundamental reasons for the poor performance of UK equities, the over-representation in the ‘old’ economy i rather than tech, together with the ongoing uncertainties surrounding Brexit and its economic implications. Political instability, including changes in leadership and policy direction, has also contributed to a lack of confidence in UK equities. But this simply does not account for the gulf in performance and valuations between the UK and its peers.”
In the budget last week Chancellor Jeremy Hunt unveiled a new “UK ISA” that allows investors to put £5,000 a year tax-free specifically in UK shares. That comes on top of the existing £20,000 annual allowance.
Miller adds: “The substantial outflows from UK equities present serious issues for the long-term health of the UK economy. It means that effectively the cost of capital for UK companies is higher as those seeking capital from the UK market must pay a higher price to attract demand and means that more and more UK companies will be prone to foreign takeovers which normally means less UK employment/investment.”
One problem is that pension funds have just 4% of their assets in UK shares compared to 50% in 1990.
This compares with Australia & Canada, both small markets, being 22% and 9% respectively of their pension funds. In fact, the pension fund that invests on behalf of Britain’s MPs and ministers, has just 1.7% invested in UK-listed companies.
There are growing calls for the government to mandate that pension funds hold a minimum level of UK equities.
The ONS, the Government’s own data cruncher, has just reported that Insurance and pension funds’ proportions in UK quoted shares have fallen since 1997 when the two sectors held a combined 45.7% of UK quoted shares. The two sectors held a total of 4.2% of UK listed shares in 2022 which is the lowest proportion jointly held by them on record.
The ONS blames this on ‘several factors, such as companies expecting more profitable returns on overseas shares as well as changes in pension fund regulations.’ At the end of 2022 57.7% of the UK market was held by non-UK investors – this percentage has increased every year since 1998 when it was just 30.7%.
Could Glencore really ditch the so-called ‘home of mining’ the London Stock Exchange?
Rhodri Morgan
Fri, 15 March 2024
Glencore's shares have underperformed rivals since the company's listing in 2011
Activist investor Tribeca sent jitters through the City yesterday with the claim that London had lost its lustre for the likes of Glencore.
The London Stock Exchange, the Aussie hedge fund said, was no longer the “home of mining”. And to realise its true potential, Glencore should ditch its City hub and abandon much-touted plans to spin off its coal business.
The calls mirrored a similar move to that of FTSE 100 mining giant BHP in 2022 when it cancelled its London listing to head down under.
BHP was one of the comparators picked out by Tribeca as it pointed to the fact that Glencore had delivered returns of nine per cent since listing in 2011 against 95 per cent for BHP and 126 per cent for Rio Tinto.
Since the beginning of the year, shares in Glencore have fallen around 11 per cent and have struggled against a backdrop of turbulent commodity prices and uncertainty over the future of its coal business.
But the accusation against London in particular is likely to unsettle City watchers. For all the hand-wringing over the future of London as a listings venue, the capital’s role as a hub for the so-called old economy stocks of heavy industry has been largely unchallenged.
As the Chartered Governance Institute said yesterday, “mining is one of the UK’s greatest success stories”, and an exit from Glencore would be a “major setback.”
Scores of mining behemoths still populate London’s markets, however, and the suggestion of a swap for Glencore fell on largely deaf ears yesterday.
“Glencore has always said it will look at ways of maximizing value, but any idea of listing on the ASX is nonsensical,” a market source told City A.M.
Ben Davis, an analyst at Liberum, added that he doesn’t “expect much appetite from management” to switch its base to Australia.
“[It’s] unclear why Australia would need an even more heavy weighting to the mining sector than it already has, and questionable what valuation uplift it would deliver,” he added.
While Glencore’s sluggish share price has naturally attracted the attention of activists, the performance is also a symptom of the industry’s external headwinds. Lower commodity prices, for instance, have dented profits, particularly in its coal portfolio.
“A change of listing won’t magically fix these,” added Sophie Lund-Yates, an analyst at Hargreaves Lansdown.
More pressing, she says, is the uncertainty over the future of Glencore’s coal arm. Tribeca is calling on Glencore to retain the division, which it has said it will spin off following the acquisition of Canadian firm Teck Resources’ coal business last year.
Glencore paid $6.9bn (£5.4bn) in cash for a 77 per cent stake in Teck’s coal business that supplies the steel industry. Japan’s Nippon Steel and South Korea’s Posco own the rest. The deal valued the business at $9bn (£7.1bn).
The call from Tribeca runs counter to its campaign against miner Teck, which it previously pushed the firm to carve off its coal and oil sands business.
Glencore boss Gary Nagle has been insistent the firm will ultimately do what its shareholders decide.
“When we announced the transaction, we said our intention was to spin out, and that is our intention, but it’s always subject to what our shareholders want,” he said at the firm’s full-year results earlier this year.
He added: “We will consult with our shareholders, and it’s the decision of the shareholders ultimately to do that.”
While the future of its coal business will sit in the hands of investors, for now, its London base seems secure.
Rhodri Morgan
Fri, 15 March 2024
Glencore's shares have underperformed rivals since the company's listing in 2011
Activist investor Tribeca sent jitters through the City yesterday with the claim that London had lost its lustre for the likes of Glencore.
The London Stock Exchange, the Aussie hedge fund said, was no longer the “home of mining”. And to realise its true potential, Glencore should ditch its City hub and abandon much-touted plans to spin off its coal business.
The calls mirrored a similar move to that of FTSE 100 mining giant BHP in 2022 when it cancelled its London listing to head down under.
BHP was one of the comparators picked out by Tribeca as it pointed to the fact that Glencore had delivered returns of nine per cent since listing in 2011 against 95 per cent for BHP and 126 per cent for Rio Tinto.
Since the beginning of the year, shares in Glencore have fallen around 11 per cent and have struggled against a backdrop of turbulent commodity prices and uncertainty over the future of its coal business.
But the accusation against London in particular is likely to unsettle City watchers. For all the hand-wringing over the future of London as a listings venue, the capital’s role as a hub for the so-called old economy stocks of heavy industry has been largely unchallenged.
As the Chartered Governance Institute said yesterday, “mining is one of the UK’s greatest success stories”, and an exit from Glencore would be a “major setback.”
Scores of mining behemoths still populate London’s markets, however, and the suggestion of a swap for Glencore fell on largely deaf ears yesterday.
“Glencore has always said it will look at ways of maximizing value, but any idea of listing on the ASX is nonsensical,” a market source told City A.M.
Ben Davis, an analyst at Liberum, added that he doesn’t “expect much appetite from management” to switch its base to Australia.
“[It’s] unclear why Australia would need an even more heavy weighting to the mining sector than it already has, and questionable what valuation uplift it would deliver,” he added.
While Glencore’s sluggish share price has naturally attracted the attention of activists, the performance is also a symptom of the industry’s external headwinds. Lower commodity prices, for instance, have dented profits, particularly in its coal portfolio.
“A change of listing won’t magically fix these,” added Sophie Lund-Yates, an analyst at Hargreaves Lansdown.
More pressing, she says, is the uncertainty over the future of Glencore’s coal arm. Tribeca is calling on Glencore to retain the division, which it has said it will spin off following the acquisition of Canadian firm Teck Resources’ coal business last year.
Glencore paid $6.9bn (£5.4bn) in cash for a 77 per cent stake in Teck’s coal business that supplies the steel industry. Japan’s Nippon Steel and South Korea’s Posco own the rest. The deal valued the business at $9bn (£7.1bn).
The call from Tribeca runs counter to its campaign against miner Teck, which it previously pushed the firm to carve off its coal and oil sands business.
Glencore boss Gary Nagle has been insistent the firm will ultimately do what its shareholders decide.
“When we announced the transaction, we said our intention was to spin out, and that is our intention, but it’s always subject to what our shareholders want,” he said at the firm’s full-year results earlier this year.
He added: “We will consult with our shareholders, and it’s the decision of the shareholders ultimately to do that.”
While the future of its coal business will sit in the hands of investors, for now, its London base seems secure.
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