As investors shun London’s Stock Exchange, with Square Mile suffering series of setbacks in past few weeks…Why we must ALL back Britain

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Money decides: a healthy stock market is an essential part of a prosperous economy

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An extensive film studio located in the northern suburbs of London has become the Land of Oz. The set on location for the new adaptation of the Wizard of Oz prequel Wicked is one of more than a dozen fictional worlds that can be created at Sky Studios Elstree.

Sky, now owned by US giant Comcast, launched its 13th and final soundstage at the venue, with an opening ceremony Thursday featuring Prince Edward, Duke of Edinburgh. The studios will bring £3bn of investment to the UK’s thriving creative sector in its first five years of existence.

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Comcast is just one of the big players, both domestic and international, that has invested billions in the UK in recent years. But while the atmosphere in Elstree is upbeat, the city is in danger of sinking into self-fulfilling funk.

Square Mile has suffered a series of setbacks over the past few weeks, leading to talk of exiting the London stock market. This was prompted by a controversial decision by microchip maker Arm to list its shares in New York rather than London, despite campaigning from ministers and the London Stock Exchange (LSE).

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A few days later, several other firms announced they were looking across the Atlantic. London snubs include building materials company CRH, asphalt maker Tarmac, and business loan bank OakNorth.

These recent backslidings are the result of a long-term trend by UK pension funds to take money out of British stocks and into overseas stock markets, as well as into government bonds known as securities.

The numbers are startling: in the 1990s, over half of all shares listed on the LSE were held by British pension funds and insurance companies. In 2000, it was less than 40 percent. Twenty years later, that figure had fallen to about 5 percent.

At first glance, it may seem that all this is a problem of city slickers and ordinary Britons far from everyday life. Not this way. When the reputation of the UK as a favorable destination for investors is eroded, it matters to all of us.

A healthy stock market is an integral part of a prosperous real economy, providing companies with the capital to invest in growth and job creation, and enabling savers to earn good returns.

When companies move to a foreign stock exchange, it shifts their center of gravity so that jobs — along with R&D — are at greater risk of moving overseas.

Foreign investors are also more likely to make a profit than British savers.

Part of the problem lies in the reluctance of UK pension funds to invest in British equities. This means that British pensioners are missing out on profits from firms on their own doorstep.

“We will all grow old and we will all need pensions. There is not enough of our own money being invested in the UK at present,” says Mark Austin, a corporate lawyer who was asked by Rishi Sunak last year to review how we can improve our capital markets.

“Other countries are doing it well, and there’s no reason why we can’t either. There may be more teachers in Ontario at the moment [through their giant pension fund] funding start-ups in the UK than teachers in Aberdeen, Belfast, Cardiff or Dover.”

Austin estimates that the FTSE 100 is undervalued by 30% to 35%. Companies, especially in the tech sector, have turned to New York because they believe they can get a higher valuation on this side of the ocean.

But as the collapse of the Silicon Valley bank last week shows, the US is by no means investment nirvana. Of the UK companies that have floated in the US over the past decade, only three – Manchester United, tech firm Endava and medical group Immunocore – are in the black.

Royal Approval: The Duke of Edinburgh at Elstree Studios

Royal Approval: The Duke of Edinburgh at Elstree Studios

The rest fell more than 38 percent on average (see table above with the least successful). Whether or not the perception of London as an unattractive market is deserved, it risks becoming a self-fulfilling prophecy if it is not stopped quickly.

Chris Morrison of GAM Investments says political instability has not improved the UK’s image among investors. He says: “Historically, the biggest strength of the UK and London has been that it was considered a very stable place to rely on. We need to get back to it.”

There are measures the government can take, such as encouraging pension funds to increase investment in the UK by changing capital rules. Board governance reforms could also make London more attractive to entrepreneurs.

But much of the solution, experts like Austin say, comes down to changing culture and attitudes.

As Amanda Blanc, head of the large insurance company Aviva, said last week, the UK financial sector must “stop belittling itself.”

Business leaders who truly believe in the UK have begun to fight back. Steve Hare, head of the FTSE 100 Sage software group, says: “We stand by the UK 100 percent. We have incredible skills and talents here.”

Team GB also boasts Simon Peckham, the boss of the Melrose engineering group, who manages GKN’s automotive division in London, taking into account and excluding the US.

“We are a British company; why don’t we swim in the UK? He says. “I know there is a downturn in the UK market right now, but it will pass. We’ve been here since 2003 and have been supported in every deal we’ve ever made.”

Mark Mullen, head of lender bidder Atom Bank, feels the same way, saying: “Atom is a UK based business serving UK clients. Logically, we would like to list in the UK.

“I think it would be unfortunate if companies chose not to list their shares in the UK when they were successful in that country.”

Allowing foreign cash to close the gap is risky

The refusal of British financial institutions to invest in British trade and industry was…

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