UK stock markets were buoyed by the Bank of England’s decision to hold interest rates at 3.75% rather than hike in line with other central banks.
After a bruising summer for fixed income markets, there was also some relief for government bonds as gilts rallied and yields softened following the BoE’s decision to slow down its gilt-selling.
In this week’s markets brief, we look at some renewed IPO interest amid news that fintech giant Revolut may be looking at listing in London. UK gilt sales are also in focus after the Bank of England’s meeting, while a new Morningstar study looks at the issue of how to turn cash savers into investors. And we look ahead to this week’s earnings, which will include some shorted consumer-facing stocks.
In This Week’s Markets Brief
- Revolut could join the FTSE 100 after founder Nik Storonsky said the fintech is considering a dual UK-US listing. It comes as the UK’s IPO pipeline has stalled.
- The Bank of England’s decision to pause its gilt-selling has provided some relief to the market amid the wider global government bond selloff.
- As the UK encourages savers to invest as part of its plan to boost the attraction of a London listing, a new Morningstar report suggests there is no easy answer to achieving broader participation in capital markets.
Revolut Eyes Joint UK-US Listing
The UK’s IPO pipeline has run dry in recent years as British companies either stay private or list in the US. However, London could gain a mammoth new entrant following reports Europe’s largest fintech Revolut is planning a dual listing in London and New York.
Founder Nik Storonsky told French newspaper Les Echos the firm is considering a joint listing on the London Stock Exchange and the Nasdaq. However, he said the firm would prioritize a New York listing due to the depth of US capital markets.
Storonsky has previously suggested a London listing was less desirable due to the 0.5% stamp duty the UK charges on buying shares.
“A Revolut dual listing makes a lot of sense, still keeping one foot in the UK while accessing a deeper capital pool in the US,” says Morningstar chief equity analyst Michael Field.
Should Revolut join the UK market, it would become the fourth largest UK-listed stock behind only HSBC HSBA, Shell SHEL and AstraZeneca AZN, if it achieves the USD 200 billion valuation it is reportedly targeting.
The company would become larger than UK banks such as Lloyds LLOY, NatWest NWG and Barclays BARC.
“There may be disappointment that London won’t be Revolut’s exclusive or potentially even its primary listing venue, despite apparent overtures from UK ministers, but the decision to also target New York is unsurprising given the scale of that market and the valuation premium it enjoys,” says AJ Bell head of financial analysis Danni Hewson.
Investors may have to wait for the IPO, with Storonsky suggesting at the end of last year that a public float was two or three years away. However, AJ Bell’s Hewson says his latest comments may ramp up speculation listing plans could be brought forward.
Even with a dual-listing, the news may signal an improving backdrop following a drought of UK IPOs in recent years. In a recent report, Morningstar PitchBook said London fell out of the top 20 global IPO venues last year.
“The UK is in the doldrums when it comes to IPOs and this can become something of a death loop, with few firms encouraged to list when the environment is so poor,” says Morningstar’s Field.
More IPOs could be on the way, with cinema firm Vue reportedly eyeing a London listing.
Meanwhile, small cap Beauty Tech Group’s TBTG Sept. 17 first-half results continued a run of profit upgrades since it listed in London last October. The stock is up over 35% since IPO.
“In terms of recent UK IPOs, it’s no secret that the market has been subdued, but the successful listing of The Beauty Tech, and its share price gains since, show that there is still demand for high quality assets,” says Berenberg consumer analyst Adam Tomlinson.
How to Make Savers Invest
Another way the UK government is seeking to boost the UK’s market competitiveness relative to the US is by encouraging more of the UK public, who traditionally prefer cash savings, to invest.
A new Morningstar study found the UK ranks among the strongest markets globally in terms of market structure and investor environment. However, even with a supportive backdrop through tax incentives, established pension systems and robust investor protections, the struggle to encourage broader participation in capital markets continues.
“Many countries are searching for the policy lever that will turn savers into investors. Our research suggests there isn’t one,” says Andy Pettit, Morningstar’s chief policy officer.
“The UK performs strongly because it has built many of the foundations that support investing, from pension participation and tax incentives to a diverse investment market,” he adds. “The challenge is closing the gap between access and action, so that more households put their savings to work in capital markets.”
Why the BoE Is Slowing Bond Sales
The Bank of England’s action this week to slow the pace of its gilt auctions has eased some of the pressure on UK bond yields, which in early September reached highs last seen in 1998.
This unwinding of this position is a hangover from the financial crisis, when the Bank of England bought nearly £1 trillion of UK government bonds as part of quantitative easing. Since this process went into reverse, as part of quantitative tightening or QT, nearly £500 billion is still left for the Bank to dispose of. The BoE had come under criticism in some quarters for continuing to sell long-dated bonds at a time when yields were already surging and prices falling, accentuating the market moves.
“After facing a lot of criticism for its active gilt sales, which made it an outlier among central banks in terms of executing quantitative tightening, it looks like the BoE is finding ways to reduce pressure on the long end without abandoning the policy altogether,” says Saxo UK investor strategist, Neil Wilson.
The move has still raised some eyebrows among London-based strategists.
“The BoE likes QT because it makes it look virtuous. But political pressure is mounting given the rise in yields. It doesn’t want to stop QT because that would be a bad look. So, instead, it has handed the problem to the Treasury,” Dario Perkins, managing director of macro strategy at research firm TS Lombard, wrote on X.
Shorted Stocks’ Earnings in Focus
Following last week’s bundle of interest rates, inflation and jobs data, a lighter week for economic announcements awaits.
In terms of corporate news, the week will bring significant earnings updates for some of the UK’s most heavily-shorted stocks.
Housebuilder Vistry VTY, which currently screens as the most shorted UK stock, will announce half-year results on Thursday. The update will follow on from half-year updates from Kingfisher KGF on Tuesday, and Ceres Power Holdings CWR and JD Sports Fashion JD on Wednesday.
