2021-12-07 22:01:48
The world’s oldest stock market is on a hot streak. Amsterdam has profited from the upheaval sown by Brexit to surpass London as the busiest European equities market.
Euronext Amsterdam, to use its official name, has also benefited from rules allowing prospectuses in English, access to broader liquidity through the other six exchanges under the same ownership, and openness to innovations such as special purpose acquisition vehicles. This year it hit a new high in money raised through initial public offerings. The biotech company BenevolentAI plans to list there via the continent’s largest planned Spac merger even though it is based in London.
To be sure, the London Stock Exchange is fighting back. It still hosts substantially more IPOs in total, and Shell recently announced plans to scrap the Dutch half of its dual listing and move its tax residence and all its shares to London.
For all this drama, the rivalry between Amsterdam and London largely misses the point. The real action has increasingly moved elsewhere. Europe as a whole is being left in the dust by the US and the Chinese and Hong Kong markets in equity trading, corporate bond issuance and pretty much every other metric that matters.
US markets have hosted 954 IPOs in 2021, while all the exchanges in the EU and UK combined have seen 389, according to Dealogic. Domestically listed Asia Pacific and American companies have each grown significantly as a share of total global market capitalisation since 2006, while European companies (including those in the UK and Switzerland) shrank from 30 to 17 per cent of the total, according to New Financial, a think-tank.
“The longer term trends are pretty scary,” says William Wright, its managing director. “US markets and Asian markets have a much more vibrant economic hinterland.”
Europe does not lack innovative start-ups. But global investors have historically discounted their revenue potential relative to rivals elsewhere because the continent’s economies are growing more slowly and national borders make it harder for companies to scale up.
Now the EU has a chance to change the narrative that it cannot afford to miss. In the first nine months of this year, European start-ups drew 19 per cent of global venture capital funding, up from 13 per cent in 2020. Europe looks appealing partly by comparison. China is cracking down on foreign investment and technology groups and many private US groups have eye-watering valuations.
But it also reflects the EU and the UK’s growing success in areas such as fintech and biotech. The vast majority of this year’s VC money is late-stage funding, which has more than tripled this year to $60bn. That means many of the recipients will soon be looking to go public.
Historically, many of the strongest groups were drawn to US exchanges by a deep investor pool and more active trading, particularly among retail investors. In the past five years, 60 EU and UK companies have listed in the US, while only 16 companies did the reverse, Dealogic says.
British policymakers are scrambling to make the UK more attractive. The Financial Conduct Authority changed its Spac rules in August and last week finalised a broad overhaul of the listing regime aimed at wooing entrepreneurial companies. Founders who chose to list on the premium section of the market will be allowed to hold shares with enhanced voting rights and make just 10 per cent of shares available to the public, down from 25 per cent.
The EU’s size gives it natural advantages. Brussels has talked for years about a true cross-border market for financial services without delivering. Such a capital markets union would make it easier for companies to raise money at home. It recently proposed the creation of live databases, known as consolidated tapes, to unify a patchwork of more than 400 trading venues. The incoming German government’s enthusiasm has given this a shot in the arm. But rapid action is needed and not just on stock market rules.
“Europe needs to enable faster scaling of firms across borders. As harmonisation of administration, taxation, rules, and regulation across 27 countries takes time, you may need a common overlay or sandbox where fast-growth companies can agree to meet European standards and then enter all EU countries at once,” says Jan Mischke of the McKinsey Global Institute.
If Brussels drops the ball, Amsterdam’s victory over London will be a hollow one.