Lagging UK Stock Market Falling Behind Canada in Value Ranks

Article content

(Bloomberg) — Britain’s stock market is lagging behind Canada in the value of listed companies, dealing another blow to London’s flagging stock market, which has been overshadowed by rising stock exchanges like India’s in recent years.

Canada’s market capitalization has risen 11% so far this year to $3.22 trillion, according to data compiled by Bloomberg. The value of companies on the Toronto Stock Exchange and the broader Canadian stock market is now converging with the UK. The data does not include foreign depository receipts and funds traded in both markets.

Article content

The move took the United Kingdom to seventh place on the list of global stock markets in terms of value, behind the United States, China, Japan, Hong Kong and India, which overtook the United Kingdom in 2021. Paris also overtook the London market in 2022, but political turmoil in France, The UK was allowed to regain its position as Europe’s largest stock market earlier this year.

For its part, the Canadian stock market briefly overtook the UK in September 2022, during the market chaos witnessed by the government of former British Prime Minister Liz Truss, but this time it looks like it could continue. The two have been moving in opposite directions over the past decade, with Canadian stock exchanges adding $1 trillion to total market cap, while the UK has lost roughly the same amount. Strategists and investors expect capital to flow into Canadian stocks at the expense of British stocks in the future.

The UK stock market’s loss is partly due to its weight in low-growth industries such as consumer staples and pharmaceuticals. While the bulk of the UK market is made up of global companies, local stocks have been hit by a series of private targets, including Brexit in 2016 and rapid changes in leadership at 10 Downing Street.

Article content

Article content

Meanwhile, Toronto is turning more towards cyclicals, all of which have risen and led the S&P/TSX Composite Index to a record 29 levels this year, as the Bank of Canada led the G7 economies in embarking on three interest rate cuts. The relatively greater weight of high-growth technology companies has helped, thanks in large part to Shopify Inc. and Constellation Software Inc., also Canada.

“Canada is a market that is still growing and still has opportunities, shining a brighter light on Canada as an investment opportunity,” said Philip Pétursson, chief investment strategist at IGM Financial. He added that negative investment flows could also make this trend a “self-fulfilling prophecy” for investors who follow global indices.

There are currently 85 Canadian stocks in the MSCI World Index, with a weight of 3.2%, compared to 75 stocks with a weight of 3.6% for the UK.

Of course, regardless of stock market capitalization, Toronto is still a long way from overtaking London as a financial centre. London ranks second after New York on the Global Financial Centers Index, well ahead of Toronto, which ranks 23rd. Furthermore, 11% of the world’s assets are managed in the UK, second only to the US, according to the Investment Association.

Article content

The London Stock Exchange declined to comment, but provided its own data indicating that the total market value of London companies exceeded their market value in Canada.

International presence

The Toronto Stock Exchange has a presence in several foreign markets, which helps drive its growth, CEO Louie Anastasopoulos said in an interview. “We probably have the most global business development team of any exchange,” he said. The company has business development staff in the UK, Australia, Brazil, Israel and several US cities.

This strategy has helped the stock exchange grow despite a historic drought for initial public offerings. There have been no IPOs in Canada since 2022, but the Toronto Stock Exchange has brought 51 new companies to the Toronto Stock Exchange since then by taking them out of competing markets.

London’s reputation as a place for international companies to list has suffered several blows in recent years. British chipmaker ARM Holdings Plc chose to go public in New York, while companies including Flutter Entertainment Plc and Indivior Plc chose to shift their main stock listings to the United States.

Article content

However, optimism is growing about a recovery in IPOs. Fast-fashion giant Sheen filed confidential papers with British authorities in June about a potential initial public offering in London, according to people familiar with the matter, in what could be a massive listing.

Read: Will an IPO bring the London stock market out of chaos?: QuickTake

Technological challenge in the UK

One of the main challenges facing the UK market is the size of the IT sector, which occupies a weight of only 1.0% on the FTSE 100 index.

Technology companies now have a weight of 8.4% in Canada, up from 2% a decade ago, to put the country ahead of the UK, but they are still just shy of the whopping 30% weight on the S&P 500.

“It’s not like Canada was highlighting productivity or innovation or a pro-growth business climate either, but the U.K. was really terrible,” said Brian Madden, chief investment officer at First Avenue Investment Counsel, noting that Canada posted a better performance. Compared to the UK since Brexit.

Article content