Green – one of the many things Britain does well
Colin Haines, a short-lived colleague in the very fast turnover of STM contractors, has posted this (he’s a top bloke – British by the way!)
I can see why he and the FT’s Katie Martin agree. The state of British rock and roll and British stock markets ain’t what it was (back in the 1990s).
Paternoster Square is now a home for tourists who sit outside the London Stock Exchange with snacks bought in Sainsburys and the little huts that have sprung up to get some of the money that has disappeared abroad back into British businesses. London EC4 is a home for tourists who stare up at the quaint St Pauls cathedral – a few yards from the stock exchange.
I remember the 1990s that the stock exchange was full of trading as were the various exchanges around the City where young lads and young ladies, dressed in loud blazers and made the markets. Now this is done with algorithms – a long way from a home market.
People think their pensions.like their football teams, are packed with home grown players
A survey by New Financial — a think-tank that has done a lot of number-crunching on the efforts to revitalise UK markets — revealed last month that holders of pensions in the country think a stonking 41 per cent of their retirement pots is invested in UK companies or stocks.
The guesstimate rises to a little over half in those aged 55 to 64. That was true, or close enough, when bucket hats were in. Now, though, the reality is nowhere close to that. In fact, across all types of pensions in the country, just 4.4 per cent is lodged in domestic equities.
The global average for domestic stocks allocation racks in at just over 10 per cent. We think we are batting for the home team, but we are not.
“Batting” yes; even our top football teams have a home bias but when it comes to the markets we don’t have a clue what is being bought on our behalf.
Last week, our main index, the FTSE 100, hit 9,000 for the first time. Investing in Britain is not a currency bet. Getting currency bets is a punt – we can lose when markets go down and we want them to rise.
America currency has gone down and that means our investments in the States have gone down as well. Mean while the UK market and currency has done damned well. A shame we had our money bet with the yanks (not that we knew).
The macro-economists can argue that we are best to diversify around the world in line with market weightings an give ourselves a “free lunch” which means that we end up betting on a few American technology companies (7 of them are worth more than the UK stock market).
But we don’t live all over the world, we live in Birmingham, Leeds, Glasgow, Bristol – London. We aren’t macro-economists – we don’t want free lunches if they taste horrid!
Rachel Reeves is demanding that we do not have 10 or 11 players in our pension team from overseas. Trustees – like football managers – want to pick to win and if there are no British players to do that, no British players will make the team. Trustees go on about fiduciary responsibilities, football managers aren’t so interested in governance – they talk of league tables.
That’s fine – except when Britain has the best players – which is what we seem to have now and in the 1990s, infact for ever! They seem to make their way into the winning teams – and fans love it!
We always seem to have good football players – we always seem to have good companies-thanks Katie for reminding us that Britain is Great.
Analysis in March from Goldman Sachs’ Sharon Bell and colleagues identified a “very British problem” of low allocations to domestic stocks — a contributing factor in the market’s drab performance compared with other gauges since the crisis of 2008.
KKR’s recent takeover of UK high-tech instruments specialist Spectris, at almost twice its listed value, is also proof that private equity sees some screaming bargains that the public UK market simply does not recognise.
We wouldn’t choose our footballers because they’re foreign, fundamentals matter more than economic theory . That goes for investments too – and it’s a lot better winning with home players!
I’m not alone – here’s the voice of Yorkshire, saying the same thing
A problem for UK investment. In 1997 the net rate of return on capital of the UK corporate sector (PNFCs private non-financial companies) was 13.7%, in 2023, it was 9.5% having failed to recover from the 2020-2022 pandemic, when it was 9.3%. In fact the only year in this period when the net corporate RoC was materially lower was 2009, when, at 8.7%, it was suffering from the after-effects of the global financial crisis.
This has come about because of a decline in productivity growth and an increase in the labour share of national income. The labour share position should be expected to have deteriorated last year given the levels of wage settlements, the changes to minimum wages and national insurance (coverage and rates) and will further decline with the Employment Rights Bill.
In the UK productivity growth has been negative since Q4 2022.
To justify investment in the UK against this background, I would need to believe in a radical turn-around, but I see no reason to believe that may occur.
When you add population demographics onto the switch to high labour (service) based commercial activities, the position looks even worse.
Who will be paying our pensions in 20 or 40 years time? A significantly shrunk UK workforce will have an increased burden from an expanded retired population, not only supporting the pension payroll but also having to deal with the increasing burden of Government debt interest and capital repayments.
The outlook for the US looks worse, partly because healthcare resides in the private sector increasing the service element of US commercial activity.
I remember being told when I started working in the early 1980s that we’d not be able to afford pensions in 50 years . We seem to afford to live longer, work less productively and save less. The answer is of course to do what we did in the 80s and 90s and turn productivity around.
Come on Mr Adventurous, we may not be as productive as we should be but we cannot plan on failure in the future.
If we have a declining working population (both because of older retirees and young people being work-shy) and a productivity issue for those that are working then maybe the country as a whole should be investing the wealth we have abroad and then repatriating the proceeds to fund the UK. This is basically what empire did, just in a more civilised way. It’s also what places like Norway very sensibly did with their oil proceeds, creating a sovereign wealth fund. I really don’t understand this fascination with investing in the UK – buying shares in UK companies doesn’t benefit those companies except when they issue new shares. Many of the big FTSE 100 companies make their money abroad. Many big UK companies are listed in the US.
Maybe we’d have a better motivated workforce if we had ownership by British shareholders investing through the UK markets and not the likes of Thames Water, Baker Hughes and so many other businesses we rely on , owned by America.
My dear friends at Pension Bee are listed in the UK and trade on both sides of the pond, I want to have more success stories like them. Was Manchester United the better for being owned by the Glaziers, is Man City the better for the tainted success? I’d love to see British football like British business being a lot more British owned please! Maybe I should be more diversified but I’m not Peter!
There’s a difference between private ownership of UK companies and UK companies being listed on other markets. If you have globally investments, as many people do then you own a chunk of Arm Holdings, which has much of its workforce in the UK but is listed in the US. Those global investments also create wealth from a global workforce that will be repatriated to and spent in the UK. Arguably the best defence for a UK company right now to avoid under-valuation leading to private equity vultures is to list in a market where they get a good valuation. Similarly, a UK company looking to raise capital on the markets to invest in a UK workforce should look to list in a market which gives it the best valuation. Being listed on a particular country’s market does not mean the company is owned by that country. You only have to look at the amount UK investors have invested in global trackers to see the reality of that. It’s unfortunate that successive governments in this country have created an environment in which few wish to invest here. Forcing UK citizens and pension funds to invest in the UK is frankly ridiculous. Create an environment in which people globally want to invest in UK companies.
I may be a dinosaur, but I believe that owning shares in a company does not mean you are investing in that company.
Quoted shares bought on a market do not provide any fresh investment in the company and the pressure to support its share price encourages companies to forego future investments in favour of distributions, and particularly share buy backs.
Private equity is no better, particularly if it is replacing one form of ownership with another as is so often the case; and the introduction of “market discipline” cost controls may even have the effect of restricting the growth that would otherwise have occurred.
Dragon type finance may create growth but the required personal involvement is difficult to achieve at scale and in a trustee/corporate environment.
All of this can be listed as the downside of investment but it’s pushing it to say that people releasing money in cash to buy shares is “investment” is a tough one on those who do. The impact of passive investment may be replacement rather than growth but we need to create a market where it is possible to grow companies and without a “growth mentality” and investment, how will that happen?
I’ve reported on the Paul Lewis v Andy Agethangelou v Charlotte Clark discussion on Moneybox, Why not put your money on deposit? I have good reasons why I think long-term money should go for growth and they don’t focus on what could go wrong!