European stock exchanges are experiencing a crisis, as trading volumes are declining, initial offerings are rare, and some of their largest companies prefer to list their shares on American markets, according to what the British Financial Times newspaper reported.
Efforts to revitalize
This lackluster activity has prompted European policymakers to move to revitalize their struggling markets through incentives designed to boost investment in domestic companies and encourage companies to list at home.
But many political, financial and cultural obstacles stand in the way of these ambitions, which have proven for years to be very strong, at a time when the American market is growing in an unprecedented way.
The British newspaper quoted the founder of the New Financial Markets Research Centre, William Wright, as saying: “Capital markets are on the political agenda in almost every finance ministry across Europe… It is a very difficult political and cultural problem.”
Before the financial crisis, the performance of major stock markets in the United States and Europe followed each other closely, even if Europe lagged Wall Street, but since 2008 the gap has widened significantly.
Thanks to the rise of major technology companies in Silicon Valley, the continued rise of the US market has attracted more money from asset managers and pension funds around the world.
Reasons for decline
The lack of activity in European markets is due to multiple reasons, according to the newspaper, and the economic performance in the European region since the financial crisis in 2008 has been much slower than the performance of the United States.
Europe lacks the fast-growing technology companies that fueled the surge in US stocks, while domestic investors have historically been more risk averse than their American counterparts and less keen to back new companies that have not yet turned profits.
In the same period, China and India have emerged as dynamic capital markets, with a host of new companies registered locally, according to the Financial Times.
The newspaper pointed out in its data that the value of companies listed on the British Stock Exchange “FTSE 100” amounted to 2.56 trillion dollars on the first of this March, while the value of companies listed in the German DAX Index together amounted to 1.98 trillion dollars, and in contrast, the market value of Microsoft reached. Alone, $3.09 trillion, and the value of Nvidia recorded $2.06 trillion.
The newspaper noted that the structure of the European market is “complex” compared to the United States, which has a small number of indicators and a single clearing house through which trades are completed.
In contrast, each European country has its own indices of listing which politicians often regard as a source of national pride, and stock trading and post-trade activities take place on many markets, dividing liquidity.
In Britain, pension funds faced pressure from regulators to cover their obligations to invest in bonds, and their holdings of British-listed stocks subsequently declined over the course of decades, according to the newspaper.
Individual investments increased during the Covid-19 pandemic in the United States, while Europe lacks an individual investment culture.
Scattered responses
Enriching Europe’s capital markets to feed their local economies is a very important issue for politicians, according to the newspaper.
But the solution itself is complex, especially in the European Union, which has 27 member states, and trade rules are being rewritten in Brussels, while countries are also adjusting their own regulations in an attempt to strengthen their national markets.
European Union politicians are trying to open the way for growth through an ambitious plan for a capital markets union, which includes facilitating the listing of companies and facilitating investor support for them.
Last month, the European Union approved a new listing law that includes making initial public offerings use clearer language and allowing company founders to retain greater control through shares with greater voting weight than other investors.
In Britain, Finance Minister Jeremy Hunt launched a series of measures to help London create and retain more high-growth companies, including directing pension fund money to startups, and simplifying the IPO documents that companies share with investors, and the financial regulatory authority plans to Britain also to reform listing categories.
