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Brexit “wrecked” the London stock market and the “consequences have been disastrous”, a leading writer on the economy has said while suggesting the level of underperformance is so “serious and astonishing” it should be front-page news and a source of “anguish debates” in parliament and in the media.
Simon Nixon, one time chief leader writer for The Times, former chief European commentator on the Wall Street Journal and the author of The Wealth of Nations Substack, gave a deeply sobering analysis of Britain’s financial failings on the latest Byline Times Podcast, out now.
He spoke with host Adrian Goldberg after publishing a post on April 8 headlined – ‘How Brexit Wrecked the Stock Market‘ – which labelled the decline so “shocking” that it is “no longer a global humiliation but a national crisis”. And, he warned: “Bad policy choices threaten to make it worse.”
“Sometimes you don’t appreciate what you have got until it is gone. How soon before Britons wake up to the national disaster that is unfolding in the stock market,” Nixon asked at the start of his post. Rather than an example of “British exceptionalism”, the FTSE 100 is now the “exception” to a global recovery, he noted, explaining how, since the beginning of January, it is up just 2.4%. US shares are up almost 10%. Japan over 18%. Germany 9%.
But, the sluggishness and stagnation isn’t new, UK stocks have been “dramatically underperforming against the rest of the world since the Brexit referendum”, he wrote. As an example, Nixon noted on his Substack, that a £100 investment in the FTSE 100 in June 2016 would now be worth £118. The same investment in the US would be worth £250; Italy, £189. UK equities currently trade at a 20% discount to the broader European market on a price-to-earnings basis and a 15% per cent discount on a price-to-book basis – both near decades’ lows, Nixon added. Before Brexit, they traded at a premium. Poor valuations in London have also contributed to a collapse in the number of listed companies – down nearly 50% in 2023 alone – and new listings have “almost entirely dried up”.
Nixon’s assessment on the current state of play: “The stock market is sending a devastating message about the way that Britain is perceived among global investors. No amount of boosterish bluster can hide the fact that Britain is a global outlier, nor should anyone be under any illusions about the consequences for the economy if this underperformance continues. This is no longer just an issue of concern for a few highly paid bankers in the City. It is an issue that goes to the heart of Britain’s economic model and long-term prospects.”
Nixon told the Byline Times Podcast that the success of the stock market made London “the financial centre of Europe and the world”, so what is happened now, “is a matter of huge consequence” and has “profound implications for Britain’s future economic model”.
“It means that a part of the economic model of Britain that people have taken for granted, is changing. And that is something we need to confront and think about.”
In his Substack post, Nixon said the stock market is being “de-globalised, a historic reversal of a decades-long trend”. Investors, he told the Byline Times Podcast, are now “shunning” London because of Brexit and the “political chaos” that came with it: “Britain has become an unattractive, risky place to invest your money”. Now that money is managed globally, and London is about 4% of the global equity pool, “it’s an easy one to skip if you just don’t like the look of it”.
“The irony is that it was the very success of the stock market that sowed the seeds of the current crisis,” Nixon wrote on his Substack where he went on to explain how as the wealth of London grew, so to did “resentment across the country, fuelled by the global financial crisis of 2008 and subsequent bailouts”.
The City’s wealth never “trickled down”, inequalities grew and “this resentment was unquestionably a key factor in the Brexit vote of 2016, when half the country exacted their revenge on what they considered an arrogant global elite”.
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The stock market, Nixon explained, not only helped to define Britain’s economy but it also shaped the politics “contributing to this lopsided economy”, and in a sense became “a victim of its own success”.
While Brexit voters were fuelled in part by “resentment”, Brexiteers, were ignorant, and took the City for granted, Nixon said: “I think they’d come to assume that it was something inherent in Britain that it was a British exceptionalism that Britain just had the City back it always did.”
Rather, Nixon explained to the Byline Times Podcast, “the City has come less to rely on British exceptionalism, but has come to depend, actually, on it being anchored in this giant single market. And that was something that wasn’t understood. It clearly wasn’t understood because Boris Johnson and his Brexit deal, didn’t even try to seek a deal for the City.”
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On 23 June 2016, 51.9% of Brits voted in favour of the leaving the EU, but that didn’t actually happen until 31 January 2020. The stock market’s underperformance, Nixon said, “really starts to kick in, in June 2016, and it’s never recovered”.
The demise of the stock market, Nixon told the podcast, puts an entire ecosystem at risk, including lawyers and bankers, accountants, brokers and PR advisers who are also “sitting there looking at empty profit pools”.
Goldberg pointed out that the British public, battling a cost of living crisis, probably wouldn’t have much sympathy for people in highly-paid positions, before Nixon explained that without their contributions government spending on public services would be impacted, making things worse for everyone.
Nixon said he’d been writing about the underperformance of the stock market since Brexit, and the response had been that once the deal was done, “the gap will close”, or that once the Conservatives “get a stable government” foreign bidders will come in, “but it’s not happening, and it hasn’t happened”.
The journalist said arguments over regulations and tax incentives, were missing the point, as “this is primarily a sentiment problem first and foremost, and it’s hard to see how one escapes that”. The issue, Nixon said, is “something that has been alarming people in the City now for several years.”
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Goldberg questioned Nixon about whether rejoining the European Union could help solve the problem, but the writer didn’t think that would ever happen, and explained to even “get to that point, would take years and would be hugely, politically contested, creating more instability”. Nixon noted in his Substack that the fallout from Brexit is onluy “destined to get worse” as the grace periods in Johnson‘s exit-deal expire, and as EU regulators attempt to lure more business from London.
Nixon said Labour’s challenge when they – in all likelihood become the next Government – will be to not fix the problem, but to stop things from “getting worse”.
And the bigger danger, Nixon wrote on Substack, is that history will repeat, that “the stock market will shape Britain’s future, just as it did its past”.
