Unlock Editor’s Digest Lock for Free
FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
Meanwhile, UK stocks have been on track for six months, the highest since 2021. Concerns about unpredictable trade policies and spiral government debt have shaken longtime investors’ beliefs about “US exceptionalism.” If there was a time for UK investors to buy a local, is that certainly now?
Instead, it appears that Brits are using the gathering as yet another opportunity while foreign investors pour. Data from EPFR and Goldman Sachs shows that overseas inflows into UK stocks have reached their highest level in the last three years, while domestic investors have been net sellers all year round. According to Goldman analysts, this is a “big difference” from patterns in other parts of Europe.
The unique British issue is more than a matter of people’s pride. Goldman’s analysis shows that higher domestic stock ownership fees correlate with higher stock valuations, and banks believe that the UK buyer shortage contributes to the FTSE 100 valuation discount compared to other major indices. This means that the cost of capital will be higher for companies listed in London. This will make growth difficult and encourage movements such as the decision to move FinTechwise’s key listings to New York.
There are several factors behind the trend. At one end of the scale, pension funds have shifted their focus from stocks in general and domestic stocks in particular. The Scottish widow’s plan to cut its allocation to UK stocks is based on a decades-long pattern. Meanwhile, individual households in the UK are far more likely to store cash or invest in their wealth than to buy stocks.
The government is trying to revise the first part. We need to increase our UK investment, even if only a small amount, to integrate small pension plans, free up surplus in defined benefits plans, and better measure the value of money offered in various schemes.
However, there is more to encourage individual investment. It can help to make financial advice and support easier. Financial Conduct Authorities are scheduled to update the next steps in their long-term “advice guidance boundary review.”
Tax-free personal savings accounts also need to be reformed. While some cities’ figures are asking for a cash savings cap, a better move is to create a single ISA product that will make switching between cash and investments easier. This allows a tense first timer to gradually soak their toes into the market.
However, the most challenging challenge is enacting cultural change in line with policy reform. Almost a third of respondents in the recent YouGov survey thought that investment was something like “gambling.” This despite the fact that cash savings have been abolished by inflation and the housing market is below stocks in the long term. If that attitude continues, the UK will actually become a gamble – with the future of that market.
nicholas.megaw@ft.com
