Analysts caution that UK stocks are ensnared in a persistent "doom loop" of decline

01 Nov, 2023

Analysts caution that UK stocks are ensnared in a persistent "doom loop" of decline

Analysts have issued a warning that small and medium-sized companies in the UK are trapped in a relentless "doom loop," jeopardizing a vital component of the country's financial ecosystem.

A report by Peel Hunt underscores the ongoing pace of decline among listed companies outside the FTSE 100 and FTSE 250. It highlights a significant 10% reduction in the number of companies on the FTSE's SmallCap index, with a staggering 30% decrease over the past five years.

Several adverse factors, including low valuations, declining liquidity, investor fund withdrawals, and a dearth of initial public offerings (IPOs), are collectively impacting the markets.

Charles Hall, Head of Research at Peel Hunt, expresses concern, stating, "The pace of decline is relentless and is likely to continue unless effective action is taken quickly."

Hall calls upon the government to introduce reforms that make it more enticing for smaller companies to list in the UK and more profitable for investors to hold shares in these firms.

He further notes that the process of being listed involves substantial costs, administrative complexities, regulatory burdens, and distractions for management. This stands in stark contrast to the conditions in private markets, where leverage is often significantly greater, pricing remains less transparent, and tax benefits are prevalent.