America's stock-market dominance is an emergency for Europe

Mint

2 days ago

The London Stock Exchange overhauled the ceremony for welcoming new companies to its ranks last year, adding confetti cannons, slick videos and cinematic music. It has mostly been used for such events as product launches and anniversaries.
So far this year, according to Dealogic, six companies have gone public in the U.K., raising $208 million, the lowest level in three decades of data. It isn't much better across the English Channel, despite surging stock markets. Initial public offerings in continental Europe have nearly halved in value compared with last year. Fundraising in the U.S., meanwhile, has jumped 38% to around $40 billion, while IPOs more than doubled in value in Hong Kong after a fallow patch.
Tech stars such as the Swedish 'buy now, pay later" company Klarna and the British chip designer Arm are eschewing local markets to list in New York. And stock-market heavyweights are disappearing, either bought out by American companies or moving their listings stateside, where business is growing faster. Examples are Wise, the British payments company, and the sports-betting company Flutter Entertainment.
'For the Europeans who are responsible for the future, this is a material wake-up call," said Stéphane Boujnah, chief executive officer of Euronext, which owns seven stock exchanges in the region. Europe doesn't want to 'be just a zone between America and Asia," he added.
Amsterdam and London pioneered the creation of public stock trading centuries ago, raising money for ship voyages to Asia, Africa and the Caribbean that forged Europe's colonial empires. Now, Europe's stock markets face a crisis of inactivity.
Not only are listing volumes moribund—exchanges are shrinking too. Hastened by a global shift toward greater private ownership of businesses, the number of listings in London has fallen by a fifth in five years, to about 1,600. London's total market value stands at about $5 trillion, while Nvidia alone is worth $4.4 trillion.
The exodus looks likely to continue. Next year Wise and the machinery specialist Ashtead are set to move their main listings to the U.S. from the LSE, which is part of the broader London Stock Exchange Group. Speculation has swirled that AstraZeneca—the largest company in the FTSE 100—could do the same.
In a recent interview in New York, CEO Pascal Soriot declined to comment on whether he is considering moving the listing.
'We are very committed to the U.K.," he said. 'But the reality is, over time, the investments are moving to the U.S." AstraZeneca recently pledged to invest $50 billion in the U.S. by 2030.
European leaders see the withering of these historic exchanges as an emergency—and one of the culprits behind Europe's economic stagnation, low productivity, and the widening wealth gap between its citizens and Americans.
'The wealth creation will happen to Texas teachers and California public-sector employees, not to European pensioners," said Stephan Leithner, CEO of Deutsche Börse, operator of the Frankfurt Stock Exchange.
Politicians fear the continent's inability to finance and keep exciting companies entrenches American domination over financial markets and reduces Europe's strategic autonomy. President Trump's 'America First" stance has added to the sense of urgency.
A lack of investment hurts European businesses, and starts long before they go public. Startups struggle to get access to venture-capital funding, and many leave for Silicon Valley or New York. Those who stay in Europe often get investment from American firms, which then want them to go public in the U.S. or shift operations there. Some companies that make the leap have become more American over time simply because their U.S. businesses grew so fast.
New listings are in the doldrums as other corners of European finance, such as the debt markets, shine. Trans-Atlantic dealmaking—one reason for Europe's shrinking stock market—is generating big paydays for selling shareholders and advisers, as U.S. acquirers hunt for bargains.
Europe's problem isn't a shortage of money, but an underdeveloped and risk-averse system for investing it. European Union households save more than Americans, but their wealth has grown by a third as much since 2009, according to a 2024 paper by former Italian Prime Minister Mario Draghi on Europe's lack of competitiveness.
Europeans hold $12 trillion of their savings, or about 70%, in bank accounts that typically have low yields, according to the European Commission. Unlike in the U.S., which cultivated widespread stock ownership through 401(k)s, they often rely on state pensions, paid out through government budgets, in retirement.
Private pension systems—in places such as the U.K., the Netherlands and Denmark—invest mostly in supersafe assets including government bonds, or U.S.-focused global stock funds. Defense-spending pledges and aging populations are straining government budgets. Channeling more savings into high-returning investments would alleviate the pressure.
Executives complain that tepid domestic investment results in lower stock valuations. The French oil producer TotalEnergies, its U.K. rival Shell and the mining company Glencore have in recent years raised the possibility of moving their listings, citing valuation gaps with U.S. peers, though none have made the jump. S&P 500 constituents have a forward price/earnings ratio of 22, compared with 13 for the FTSE 100 and 15 for Germany's DAX.
Some Europeans argue that the premium on U.S. stocks is illusory, noting that groups such as the plumbing-supplies company Ferguson Enterprises failed to close the discount to American rivals after moving their primary listings to New York. Only three of the 20 U.K. companies that opted for a New York debut in the past decade have seen market value increase, while half have delisted, according to the LSE.
Higher pay for U.S. executives is another draw. Peter Jackson, the chief executive of Flutter, which owns the betting platform FanDuel, nearly tripled his compensation after the gambling company moved its main stock listing to New York last year from London.
European leaders have tried to reverse the tide, but with little to show so far. The U.K. has moved to deregulate, including by loosening restrictions on supervoting shares favored by tech founders. The government is launching a 'concierge service" to court businesses and backed an advertising campaign to encourage more retail investing.
Speaking at a recent investment conference in London, Julia Hoggett, the CEO of the London Stock Exchange, urged attendees to be more confident. 'If we keep talking ourselves down…then we shouldn't be surprised of the consequences," Hoggett said.
The EU, meanwhile, has revived the painstaking work of knitting together its 27 members' capital markets. The project is already a decade and more than 55 regulatory proposals old.
Deutsche Börse's Leithner was part of a working group that ended in a list of technical problems, such as tackling differences in national bankruptcy approaches.
'We need to make the leap from talking about technicalities to fundamental change," said Leithner. 'If this doesn't happen, it will be a major shame. It would be almost a crime on the younger generation."
Write to Chelsey Dulaney at [e-mail] and Joe Wallace at [e-mail]