Importance Score: 72 / 100 🔴
Donald Trump is effectively showcasing that US stock exchanges do not consistently surpass their European counterparts.
Intermittent trade skirmishes, threats to dismiss the chairman of the Federal Reserve, and overall instability have catalyzed a reassessment of subdued Europe. While the S&P 500 has declined by 6% this year, the FTSE 100 has risen by 2.5%, and the pan-European Stoxx Europe 600 has improved by 3%. These disparities may not be substantial, yet they signify a shift from recent trends.
UK and European Companies Moving to the US
Is this shift sufficient to halt the purported “exodus” of British and other European enterprises to what are presumed to be more lucrative and fluid US markets? The notion of European stagnation versus US dynamism has dominated the narrative for years. Companies like Ashtead, Ferguson, and Flutter have relocated their primary listings to the US. Each departure is often portrayed as “another setback” for London.
New Financial’s Perspective
Here is a “reality check” report from the New Financial think tank that every restless board of a UK-listed company should consider. The idea that a company’s share price would automatically increase by relocating to the US is not necessarily true.
The report identifies 130 European firms, including 51 from the UK, that have relocated to the US over the past decade. This includes companies that switched their listing, listed for the first time, or merged into a US entity. These companies collectively represent $676bn (£504m) at today’s value. However, this group constitutes just 2% of European enterprises.
Performance Post-Relocation
Surprisingly, 70% of European companies that moved to the US are trading below their initial listing price. Less than a fifth have outpaced the S&P 500, and three-quarters have not surpassed their respective European markets post-move. It is important to note that the data is influenced by the poor performance of European companies that joined the short-lived US trend of SPACs, or “blank check” entities.
Of the 42 companies that took this route, nine were reduced to zero (examples include Cazoo and Arrival, the electric van firm). Yet, even among the mature companies that merely switched their listings, the share price performance is roughly equivalent to a draw: 44% have outperformed the European market since moving.
Analysis of Valuations
Why this performance disparity? Because the valuation premium on US markets (about 30% in the last count) does not translate to individual companies or sectors. A significant portion of the high valuation in the US is due to the substantial weighting of highly valued and large technology firms. According to New Financial, “US shares have a higher valuation due to higher growth and return on equity, not simply because they are listed in the US.
Recommendations and Market Improvements
It is not advocated that European firms never move. For some, relocation makes sense. Companies like Ashtead and Ferguson had transformed into US entities in terms of revenue. Spotify from Sweden had likely outgrown its domestic market. SoftBank’s decision to relist Arm Holdings, the UK’s prestigious tech firm, in the US, where it can compete alongside Nvidia, was commercially rational. The US undoubtedly holds advantages in biotech.
The key point is that relocating does not always guarantee better outcomes. There have been success stories – such as Arm – but the overall performance of these companies suggests that moving is not a universal solution. A call for complacency is not made; instead, ideas are presented to enhance European stock markets by reducing fragmentation.
The Larger Threat
Like US stock exchanges, European markets also face challenges. However, the more pressing issue is the enormous impact of private equity, which continues to pose a significant threat to stock markets. The report highlights a concerning statistic: Over the past decade, 1,000 listed companies in Europe, with a combined value exceeding $1tn, have been acquired by private equity and privately held firms. This trend overshadows concerns about companies moving to the US.