Technical News: Issue 26
The stampede out of London continues
The decline of London’s stock market is starting to look terminal.
Payments giant Wise has decided to shift its primary listing from London to New York just four years after first floating in the capital. Wise is that rarest of things: a London-listed tech disruptor shaking up the cosy banking club that once dominated international currency exchange. Its loss is a blow that risks turning the trickle of firms out of London into a stampede.
Wise will maintain a secondary listing in London, but boss Kristo Käärmann argues that “we kind of have to accept the reality of where the world’s capital is concentrated.” The bad news just keeps piling up for London, with metal investor Cobalt Holdings pulling a planned $230m listing that had been expected to be the largest of the year. The London Stock Exchange officials’ hopes of a big listing from Shein are also receding as the fast-fashion group turns its sights towards Hong Kong.
Wise’s abandonment of London may not be all that wise. Low valuations, one classic London gripe, doesn’t apply in this case. On 29 times consensus 2027 earnings, Wise actually trades at a premium to comparable US-listed firms. Käärmann argues that a US listing will boost his firm’s role in America, but unlike some other recent FTSE departures, Wise makes only a fifth of revenue stateside, less than it derives from Europe or Asia. Only 44% of European “pond-hoppers” go on to beat the performance of their home continent. Wise risks joining the ranks of those starry-eyed businesses that list in New York only to be ignored in America’s crowded marketplace.
A key motivation may be to do with maintaining control. America is friendlier than Britain to dual-class share structures that allow company founders to maintain disproportionate voting rights. UK rules left Wise ineligible for inclusion in the FTSE 100 benchmark.
Wise’s departure marks a sad end to the disastrous 2021 vintage of tech listings, which included Deliveroo (dubbed the worst IPO in London’s history) and two other firms that subsequently entered administration. London suffered the worst year for departures since the financial crisis” last year and 2025 shows no signs of bringing any relief.
But talk of the London market’s demise is exaggerated. Shares in more traditional sectors such as banking, leisure, energy and specialist industrial groups continue to perform and raise capital. London’s glaring weakness is in tech, where it struggles to compete with the US. There is much talk of relaxing stock-exchange rules to help, but stock markets reflect underlying economies; Britain’s longstagnant GDP leaves our firms sailing on seas of blandness. To save the stock market, the government must first make Britain an economy that encourages entrepreneurship.
Commercial property rebound
The growth rate of online shopping, including food, has slowed to the mid-30% range. Customers see them as a destination. They want to browse in shops, visit cafes and restaurants, and go bowling. Retailers have learned that returns from online shoppers are expensive to handle, shops now serve not only as sales outlets, but also as showrooms for online purchases.
In late 2024, Land Securities paid £490m for the Liverpool One shopping centre, which Land Securities describes as ‘one of the premier shopping centres in the UK.’. It expects to generate an income return of 7.5% and to grow that figure meaningfully over the next few years.
A lot of capital has gone into “big-box” distribution hubs, so rental growth is likely to slow in that subsector. But there is a supply shortage of estates with multi-let industrial and distribution units. Meanwhile, the market for the ‘alternative’ property sector, including hotels, self-storage, residential and student accommodation, is mostly healthy.
There have been plenty of false dawns since the market peaked in late 2022. Values have fallen 20%-25% since the peak – less than the 40%-45% in 2009, but the sector is less leveraged today than it was in 2009. In addition, rental values were flat then but have risen 10% since late 2022.
Fund Manager, Schroders, forecasts a total annual return of 8%-10% for UK real estate over the next four years, which would ensure both higher dividends and capital appreciation. There is value in repurposing units and redeveloping tired buildings, as well as opportunities in the inflation linked income from hotels, but it is more interesting to be an owner and operator than just an owner.
Sentiment in the property market is vulnerable to higher gilt yields and global factors, but with interest rates likely to trail lower, there should be a recovery. With a shortage of supply, we don’t need a surge in demand to see decent returns. Share prices in the sector have started to discount such a recovery, but there should be much more to go for.
Red tape ties up landlords
Rental yields for some landlords reached a 13-year high at the end of last year, with an average return of 6.93%, according to Paragon Bank.
But landlords remain under pressure. One in three is considering leaving the private rental sector altogether and nearly a third (29%) have already sold some of their properties over the last 12 months – 32% of their portfolio on average.
Increased regulation, high mortgage rates and high maintenance costs mean more landlords are being squeezed out of the market. And now new rules threaten to make matters worse.
The Renters’ Rights Bill, expected to become law in England later this year, will ban in-tenancy rent rises, fixed-term tenancies and no- fault (Section 21) evictions. The legislation is supposed to give renters more protection and clamp down on rogue landlords. But if you’re a landlord and have a genuine reason to evict a tenant, expect an uphill struggle, as you will be required to prove your case and may face legal delays.
The end of Section 21, ‘no explanation’ repossessions represents the biggest change to the sector for over 30 years. Once the bill is passed, it is vital that sufficient time is provided to enable the sector to prepare properly.
Over 4.5 million households will need tenancy agreements updating, lettingagent staff and landlords will need to undertake training and insurance, and mortgage providers will need to adjust policies and rates. None of this will happen overnight and the government needs to publish guidance.
For those who aren’t put off by the Renters’ Rights Bill, the new energy efficiency rules may prove the final straw. From 2030, rental homes will need a minimum Energy Performance Certificate (EPC) of C – up from the current requirement of E. Energy ratings start from A, representing the highest level of energy efficiency and lowest running costs, and extend to G, the category with the lowest energy efficiency and highest running costs. At present, according to the Office for National Statistics, around 60% of homes fall short of a C-rating.
The aim is to reduce energy bills for renters, but it could add thousands to landlords’ costs; they may be forced to make several changes to their property to secure a new EPC. Energy data firm epIMS says the average landlord is thought to have eight properties within their portfolio. To bring a sub-C rated home up to C could set them back £8,000. That’s a potential required investment cost of £64,000 over the next five years.
IHT trap for savers
More than half of pension savers plan to alter their retirement plans amid changes to inheritance tax (IHT) rules, a new survey shows, prompting warnings that some could find themselves short of cash later in life.
Research from Interactive Investor suggests that 54% of savers are now rethinking their retirement strategies following the government’s decision to bring pensions cash within the IHT net from April 2027. Currently, most unused money in pension funds can be passed on to heirs completely free of the tax, normally charged at 40% above estates worth more than £325,000.
Most savers changing their plans say they will now try harder to use up their pension savings before their deaths, either by spending more of it or by making withdrawals and then giving the cash away through one-off gifts or from excess income. But while this strategy will reduce the value of savers’ taxable estates on their deaths, pension experts worry some people could run out of money later in retirement.
All pension savers managing incomedrawdown plans to finance their retirement have to be careful to leave enough money in their funds to last them until later in life. This is a tricky balancing act for everyone, but those aiming to run their funds down to avoid an IHT bill will face an extra challenge.
Disappointing investment returns on their remaining money, for example, could lead to it running out sooner than anticipated. Savers who need expensive long-term care later in their retirement could find they don’t have enough money to pay for it.
Similar difficulties could hit savers planning to reduce their pension contributions following the changes, another common strategy. Their pension funds will be smaller – reducing the likelihood of IHT charges but increasing the risk of running out of cash.
Managing such dilemmas is not straightforward, because calculations about how much you can safely withdraw from a pension fund depends on unknowns such as future investment returns and how long you live. However, there are other strategies for mitigating a future IHT bill that carry less risk.
One option could be to steer clear of income-drawdown plans altogether, opting instead for an annuity. These contracts guarantee a set amount of income for the rest of your life while using up your pension fund assets. It may still be possible to bequeath other assets to your heirs. Another possibility is to set up a life- insurance policy within a trust structure that pays out enough to help your heirs settle any IHT due on your death. This can also be a convenient way for your heirs to manage your estate.
Advisers also suggest unmarried couples may want to wed, so they can take advantage of the IHT exemption on assets passed from one spouse to the other.
Alternatively, wealthier savers may look to other investment schemes that remain outside the IHT system. For example, advisers report growing interest in the enterprise investment scheme (EIS), which offers IHT concessions for investors prepared to put their money into high-risk early-stage businesses.
However, it makes sense to get good-quality financial advice as you explore these options. Making investment decisions solely based on tax rules – which are, in any case, subject to change in the future – is never a good idea. An adviser will help you look at your plans in the wider context.
Sterling’s turning
News that UK inflation has jumped to its highest in more than a year is not especially encouraging for the economy.
We knew that it was on the way – prices hikes from utility companies guaranteed that April’s data would not be pretty. However, the increase to 3.5% on the consumer price index (CPI) measure is greater than expected and does not sit especially well with the Bank of England’s projections that inflation would peak at 3.7% later this year and fade smoothly back to the 2% target.
Expectations for further interestrate cuts have been dialled back a little as a result, though there is no reason to put much weight on that. Markets tend to overreact to one month’s bad number, even though there is plenty of noise in the data. A few of the rate-setting committee have made the effort to sound a bit hawkish lately – with Bank of England chief economist Huw Pill warning that cutting too quickly poses “upside risks” to inflation. Yet most policymakers have a bias towards cutting whenever they have an excuse – hence rates have been lowered by a full percentage since their peak for no compelling reason.
Still, sterling has been one of the few beneficiaries, rising above $1.345 (at time of writing) – its highest against the dollar for more than three years. Markets apparently believe that higher inflation will cause the policymakers to cut more slowly than they would otherwise have done.
In reality, the idea that higher nominal interest rates resulting from higher inflation are bullish for currencies is not rigorous. Other theories argue that it is real exchange rates and real interest rates that matter. The truth is that forecasting currency movements is an exceptionally unreliable business. Almost any scenario can be made to sound persuasive. Nonetheless, in real effective exchange rate (REER) terms, sterling is still relatively low by historic standards, which also helps make the case for further gains. However, it is worth keeping in mind that the pound seems to have been in on-off long-term decline over the past five decades before getting too bullish on Britain.
On the other side of the equation, you can certainly make a reasonable case for dollar weakness – not just against the pound, but more broadly. During Donald Trump’s first 100 days in office, the dollar declined by more (versus a basket of other major currencies) than during the start of any other presidency since the US abandoned the gold standard in 1971. Foreign investors are rattled, even if complacency has returned in domestic markets.
This is important because the strength of the dollar has been an important tailwind for foreign investors over the past 15 years or so. It is not the only reason why US markets have outperformed, but it has been part of a virtuous cycle – capital flows into America, pushing up markets and the dollar, and thereby attracting even more capital. If we have now reached a turning point for both sterling and the dollar, this will no longer work in our favour when we buy US assets.
No risk, no reward
Our clients’ pension portfolio’s asset allocation is likely to be too conservative. If you’re anything like the typical Briton, your money will be deployed with great caution.
Just 8% of savers in the UK are happy to hold high-risk assets in their pension plans. By contrast, 43% of savers want low-volatility holdings, or investments where there is no risk at all of a fall in value.
Unfortunately, that suggests many savers are heading for disappointing growth on pension investments. Low-risk investment very often goes hand in hand with low returns. Indeed, anxious pension savers may even be more likely to lose money over the longer term.
Inflation will erode the real value of your money unless you can generate returns to keep pace with – and outstrip – price rises. There’s less chance of that with more conservative investment strategies.
The latest edition of Barclays’ annual Equity-Gilt Study reveals that UK equities have delivered an annual return, after inflation, of 2.9% over the past 20 years. Corporate bonds, by contrast, have managed just 0.1%; gilts (government bonds), produced negative real returns of -0.6%; and cash generated a real return of -1.8% a year.
That’s not to suggest completely throwing caution to the wind. But if you’re still in your twenties, thirties or forties, say, you’ve got decades to wait until you start drawing down your pension investments. Short-term ups and downs in the value of your savings are almost entirely meaningless in this context; you certainly shouldn’t pass up on the potential for long-term outperformance for fear of a setback – even a large one – along the way.
Older savers can also fall into this trap. Most fifty-year-olds still have plenty of pension investment years ahead of them. And given that the majority of people now draw pension income directly from their pots, rather than cashing them in to buy an annuity, your investment horizons may be even longer than you realise. So, what does an adventurous pension portfolio look like in practice? Well, it should still be diversified across asset classes (and within them) and geographies. But it can be heavily weighted towards investments associated with delivering higher returns over longer periods, even if short-term volatility is a risk too.
To give you an idea of what’s possible, Morningstar has developed a range of model portfolios for investors with different attitudes to risk to consider. Its long-term adventurous portfolio is currently 92% invested in equities with the other 8% in bonds. Within the equity holdings, the portfolio is split between North America (36%), Europe (31%), global emerging markets (15%), Japan (9%) and the UK (1%). And within those first four geographies, several different funds provide exposure to different types of company. There is no single right answer here. Many investors might want to trim that level of equity exposure to make room for something else: property perhaps, or alternative investment such as infrastructure or private equity.
But the shape of this model portfolio gives pause for thought. It is far more heavily invested in equities than many savers may feel comfortable with, and much less exposed to the UK. There are no guarantees, and eventually you will want to start reducing the risk profile of your pension investments. But the approach to saving many Britons are currently taking is not the right one.
