Latest / Merryn Talks Money / How to Fix the UK Stock Market Quickly and Cheaply

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How to Fix the UK Stock Market Quickly and Cheaply · Merryn Talks Money

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  Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Welcome to the Marin
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  Speaker 1: Talks Money Market Wrap. Well, we talk about the biggest
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  Speaker 1: moved in the market this week and what's driving them.
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  Speaker 1: I'm Mary'sum's network editor at Large with Bloomberg UK Wealth.
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  Speaker 2: And I'm Joined Steppek, Senior report of Bloomberg and or
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  Speaker 2: Money Distilled newsletter and not surprised to have to introduce myself.
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  Speaker 1: That someone sentence on me about that every time I
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  Speaker 1: introduce myself and then we have to wait an extra
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  Speaker 1: beat for John to remember that he's coming on the
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  Speaker 1: podcast with me, even though it happens every week, often
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  Speaker 1: twice a week. Anyway, here we are.
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  Speaker 2: John's not surprised.
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  Speaker 1: I'm not surprised, but boy, we have a board you
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  Speaker 1: listened to. We're recording here on the eleventh of June,
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  Speaker 1: and John has sat through the entire spending review this morning.
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  Speaker 1: I just dipped in and out.
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  Speaker 2: Yeah, it wasn't It wasn't thrilling. It did sound very
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  Speaker 2: fiscal event for something that's not meant to be a
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  Speaker 2: fiscal event, I have to say. And I did feel
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  Speaker 2: as if it was presented in the manner of a
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  Speaker 2: budget and that there was an awful lot of mentioning
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  Speaker 2: of NHS and an awful lot of slagging off fourteen
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  Speaker 2: years of Tory misrule. But in amongst that it was
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  Speaker 2: mostly rhyming off the sorts of stuff I say, the
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  Speaker 2: source of stuff you get in the introduction to our
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  Speaker 2: budget when they talk about how they're going to fund
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  Speaker 2: I know, rat traps and Scunthorpe or something like that.
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  Speaker 2: And there was all of that sort of stuff and
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  Speaker 2: not a great deal of meat on the bones in
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  Speaker 2: the market. Didn't have any reactions. So at the end
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  Speaker 2: of the day, I don't think we need to care,
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  Speaker 2: except for the fact that taxes will probably have got
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  Speaker 2: up in the budget.
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  Speaker 1: Yeah, I mean I think by the way I do care.
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  Speaker 1: I care quite a lot because it shows, however you
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  Speaker 1: cut it, quite a big rise in public spending. It
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  Speaker 1: shows that spending from twenty twenty four through twenty twenty
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  Speaker 1: nine is going to be running and going on forty
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  Speaker 1: five percent of GDP. That's really massive. Anything over forty
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  Speaker 1: percent suggest that things are slightly out of control. It
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  Speaker 1: really doubt given it appears to be impossible historically anyway
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  Speaker 1: for the UK to raise more than thirty five thirty
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  Speaker 1: six thirty seven toms percent of GDP and tax revenues.
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  Speaker 1: So it suggests that, you know, we're going to see
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  Speaker 1: rising tax taxes, probably which way, which we may refuse
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  Speaker 1: to pay, who knows, but we're going to see tax
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  Speaker 1: rates going up, and we're going to see they're going
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  Speaker 1: up still, you know. And here we are in a
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  Speaker 1: really shocking situation, debt wide, incredibly fast rising debt, servicing costs,
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  Speaker 1: no economic growth, was supposed to be investing in defense
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  Speaker 1: at really fairly high levels, and I don't think there
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  Speaker 1: was much about that in this that puts it up
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  Speaker 1: towards the three three and a.
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  Speaker 2: Half PROVI is only two six, very poor.
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  Speaker 1: So you know, you look at this and all I
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  Speaker 1: can see is continual massive spending. Tax is probably going up,
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  Speaker 1: more cracking of the social contract, difficult in paying the
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  Speaker 1: servicing costs of this debt, and not quite enough on defense.
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  Speaker 1: Miserable times, John, miserable times. I've booked someone the other
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  Speaker 1: day in America, and investor I was having lunch with
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  Speaker 1: and we were talking about the miseries of the UK
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  Speaker 1: economy and miseries of the UK government, and he said,
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  Speaker 1: you know what, my problem here is that all this
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  Speaker 1: is completely fixable. It's simply a matter of policy.
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  Speaker 2: You can fix the UK.
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  Speaker 1: It can be fixed. It's just that, for reasons I
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  Speaker 1: simply don't understand, your government doesn't appear to want to
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  Speaker 1: fix it. And one of the things that we've talked
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  Speaker 1: about before, John, is about how hard it is for
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  Speaker 1: government to fix stuff because they've given away so much
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  Speaker 1: with their power to quangos and you know, other supposedly
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  Speaker 1: neutral bodies that in fact it is very difficult for
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  Speaker 1: them to do most of the things they want to do.
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  Speaker 1: And then we have you know, law fair et cetera,
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  Speaker 1: et cetera. It makes it difficult. But nonetheless, a government
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  Speaker 1: with a big majority should have the power to the
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  Speaker 1: very used to return the power to themselves to do
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  Speaker 1: the things that they want to do right the shoes.
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  Speaker 2: I think a big part of the problem is that
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  Speaker 2: a lot of the UK is now special interest groups
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  Speaker 2: who have specific interests in keeping things the way that
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  Speaker 2: they are, whether that be you know, elements of the
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  Speaker 2: public sector or elements of the third sector, or elements
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  Speaker 2: of the civil service that don't actually want all this
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  Speaker 2: to be taken back off them. So I think there
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  Speaker 2: is a lot of pandering to people for whom the
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  Speaker 2: solutions to have a lot of our problems would based
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  Speaker 2: on over them not being in a cushy job anymore.
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  Speaker 1: I don't think we should talk about the third sector anymore.
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  Speaker 1: I't want to talk about the third sector.
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  Speaker 3: Yes, you know, if we talk about public, and we
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  Speaker 3: talk about private, and then we have this third sector
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  Speaker 3: which is a nonprofits, charities, et cetera, But that's government,
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  Speaker 3: that is basically government because so many of them are mainly.
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  Speaker 1: Finite bias state grants, gift aid, et cetera, et cetera.
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  Speaker 2: But with even less accountability. That's the only thing. But
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  Speaker 2: but I think the one thing that the only reason
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  Speaker 2: you have to sort of differentiate in some way is
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  Speaker 2: it's like a kind of it's it's like a parasite
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  Speaker 2: on the public sector already, right.
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  Speaker 1: Onto one thing that the government could change. Back to
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  Speaker 1: my American investor in him saying you can change all
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  Speaker 1: the stuff in the UK. You can get yourself back
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  Speaker 1: on a better pause. It's simply a matter of political will.
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  Speaker 1: And when I hear that said, the first thing I
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  Speaker 1: look at is the UK stock market. That is something
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  Speaker 1: that we could fix. It really wouldn't be that hard.
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  Speaker 1: But for some reason today's politicians and Rachel Reeves in particularly,
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  Speaker 1: are so obsessed with the happy news they've run from
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  Speaker 1: the private equally bros. That they don't seem to be
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  Speaker 1: interested at all in fixing the UK stock market. This
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  Speaker 1: is turning into a rand I'm gonna handle to you, John, not.
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  Speaker 2: Your rate, and it is you brought a very good
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  Speaker 2: piece on it for myny to tell jest day about
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  Speaker 2: that we do. We've this week along we've just lost
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  Speaker 2: to decent look and quite excitant tech tape companies Specters
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  Speaker 2: and Alpha. We've both been bought over by US buyers.
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  Speaker 2: And as you're at pointing it like thought, the companies
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  Speaker 2: are either under bed or have been bid for this
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  Speaker 2: year and within one IPO. Well that that kind could
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  Speaker 2: tell you that is that is a very rapid piece
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  Speaker 2: of de equitization.
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  Speaker 1: And if there is our market literally dying, dying, disappearing,
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  Speaker 1: and you know, it means that there isn't UK growth
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  Speaker 1: for people to invest in, that new companies aren't there,
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  Speaker 1: that fast growing companies aren't there, That companies that were
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  Speaker 1: extremely cheap in valuation terms of being bought out without
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  Speaker 1: UK investors getting the benefit. Also together, premium is brought
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  Speaker 1: out at the average there. I can't remember what I said,
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  Speaker 1: it was something like forty So I get that. But
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  Speaker 1: obviously with people buying them think there's a lot more
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  Speaker 1: value in them than that forty three percent premium, Well,
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  Speaker 1: they wouldn't do it in the first place, and we
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  Speaker 1: miss out on all that.
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  Speaker 2: Yeah, and so who would you fix this?
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  Speaker 3: Me on?
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  Speaker 1: Well, I think it's quite easy. I mean, you know,
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  Speaker 1: we look at this, and we've talked about this over
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  Speaker 1: and over and over and over. You look at the
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  Speaker 1: UK market, it's in the gold RUMs. It's all well,
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  Speaker 1: everyone goes off the verse in the US, et cetera.
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  Speaker 1: We need first some signals, and the biggest signal of all,
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  Speaker 1: the biggest and best signal, would be to get rid
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  Speaker 1: of stamp duty or at the very least cut it
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  Speaker 1: down to a very low level. One of the reasons
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  Speaker 1: that there is such low liquidity, and low liquidity is
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  Speaker 1: one of the reasons people don't like the UK market
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  Speaker 1: is because we have the second highest transaction tax on
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  Speaker 1: equity trading in the world after Ireland, which is not
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  Speaker 1: you know, lots of places have no transaction tax at all,
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  Speaker 1: and those that do have a very very low one,
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  Speaker 1: because no one wants to pay this price fifty basis
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  Speaker 1: points at half a percent every single time they trade.
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  Speaker 1: It almosts to do that, and so we have that
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  Speaker 1: if you get rid of that great signal instantly.
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  Speaker 2: And it's not that expense of so it's three point
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  Speaker 2: stamp duty makes about three and a half billion points
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  Speaker 2: a year, which in the coin takes of the excheckert
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  Speaker 2: is buttons. So I think that that's really point that
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  Speaker 2: this is something that we probably would pay for itself.
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  Speaker 2: I TA in the law and government. I'm not sure
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  Speaker 2: how you would prove that to the RBR. But at
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  Speaker 2: the same time, it really isn't a lot of money.
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  Speaker 1: Yeah, there have been some studies on this actually, but
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  Speaker 1: not not in the UK in the US, but it
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  Speaker 1: turns out into texas et cetera. In fact, there was
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  Speaker 1: one in the UK, but it was quite some time ago,
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  Speaker 1: so maybe not valid anymore. Anyway. See, the benefits of
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  Speaker 1: a healthy deep liquid equity market go far far beyond
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  Speaker 1: a couple of a couple of billion quity here or
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  Speaker 1: there in tact, so there's that there's all sorts of
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  Speaker 1: things that you can do to make it a little
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  Speaker 1: bit more easy to list, a little bit more straightforward,
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  Speaker 1: a little less expensive. You could do some various regulatory things.
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  Speaker 1: And the most important thing here is flows, is seeing
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  Speaker 1: money actually coming into the market to improve the liquidity.
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  Speaker 1: And you and I have talked before about the brit
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  Speaker 1: I said we were great fans of that, although apparently
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  Speaker 1: we shouldn't have been and that doesn't go with our
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  Speaker 1: go with our brand and go with our vibe. But
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  Speaker 1: actually we are pro the britih isswer if you getally
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  Speaker 1: from other UK taxpayers on money you've invested, it makes
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  Speaker 1: sense that you should be obliged to put that into
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  Speaker 1: the UK market. You don't have to have an ISA,
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  Speaker 1: you don't have to have a bridge iSER, You can
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  Speaker 1: invest without a tax rap now absolutely fine, But it
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  Speaker 1: makes sense to think that that money that gets UK
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  Speaker 1: tax relief should flow into the UK. So there is that,
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  Speaker 1: and then there is you know where against I suppose,
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  Speaker 1: generally speaking, mandating pensions etcetera to invest in UK markets.
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  Speaker 1: But again we're talking here about getting tax relief from
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  Speaker 1: the UK taxpayer, So does it make sense to it
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  Speaker 1: at the very least have a strong expectation that UK
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  Speaker 1: pension funds would invest in the UK market like they
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  Speaker 1: do in other countries. By the way, Australia, we're a
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  Speaker 1: bit of an Australia and I mentioned I think in
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  Speaker 1: the piece I wrote for you and Money Distilled, the
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  Speaker 1: countries such as Jilli, Mexico etc. Are reforming their pension
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  Speaker 1: systems to push up equity inflows, not necessarily mandating them
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  Speaker 1: into their own markets, but nonetheless pushing out pushing up flows.
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  Speaker 1: So it seems to me that there are a variety
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  Speaker 1: of things that you can do to maybe the UK
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  Speaker 1: look more attractive to both domestic and to international investors.
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  Speaker 1: They're not expensive, and in the main they come down
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  Speaker 1: to signals as much as anything else, because right now,
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  Speaker 1: every single signal that the UK is sending to the
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  Speaker 1: rest of the world is it's a better a rubbish market.
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  Speaker 1: You know what, we don't care and you can turn
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  Speaker 1: that around pretty quickly.
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  Speaker 2: Well yeah, And the other thing is so she's they
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  Speaker 2: are basically mind eating that the pension funds have to
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  Speaker 2: put ten percent of their money anti private assets, five
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  Speaker 2: percent which has to be in the UK. Now, okay,
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  Speaker 2: some of that can be an aim, but I think
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  Speaker 2: the I don't like the idea of that at this
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  Speaker 2: stage in the private equity cycle. You know, kind of
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  Speaker 2: retail investors both here and in the US are being
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  Speaker 2: tapped up by private equity lobbyists to act as exit
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  Speaker 2: liquidity for their doff investments. However, even if you sort
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  Speaker 2: of sympathize with private equity in some ways, if you
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  Speaker 2: can revitalize the UK market by by pushing flows into
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  Speaker 2: the UK market, or rather attracting flows to the UK market,
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  Speaker 2: then that's a place where the private equity people can
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  Speaker 2: go in, I p O their stuff, you know. So
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  Speaker 2: it still still makes far more sense to boost a
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  Speaker 2: kind of solid piece of financial infrastructure that we already
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  Speaker 2: have that it's currently kind of weathering the on the vine.
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  Speaker 1: We already have it. It's already there, It's incredibly important
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  Speaker 1: to our economy, and the infrastructure around it is a
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  Speaker 1: big part of our services economy. So already there, it
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  Speaker 1: needs little help, right, Why ignore it in favor of
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  Speaker 1: something maybe a little more fashionable.
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  Speaker 2: Yeah, yeah, that's especially it's Pisces thing they do. That
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  Speaker 2: new market cut seems a bit of it because that
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  Speaker 2: is actually going to be free of stamp duty. You know,
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  Speaker 2: it's going to be what probably once a one or
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  Speaker 2: kind of once you know, fortnite. It just seems odd
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  Speaker 2: to be setting up these other things that will probably
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  Speaker 2: struggle to get traction and not just focus, as you say,
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  Speaker 2: on the things that already exist.
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  Speaker 1: Yeah, already exists, are important and crucially and this brings
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  Speaker 1: the flight back to the beginning. Are fixable. Yes, it's
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  Speaker 1: an easy win, a really easy winter. Why not just
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  Speaker 1: do it? Oh? Well for exhausting, isn't it slightly frustrating?
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  Speaker 1: Very refreshing? Anything else we should talk about? I suppose
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  Speaker 1: we should mention that the S and P is now
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  Speaker 1: back where it was Inaugurationian day, so basically the entire
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  Speaker 1: the entire debarcles and trunk board it in the stock market, debarkle,
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  Speaker 1: it's over all gone. I don't worry about anymore.
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  Speaker 2: Yeah that was I suppose. The only thing is that
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  Speaker 2: at least it's still down in dollar terms. But that's
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  Speaker 2: about it.
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  Speaker 1: And I suppose the other thing to say is that
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  Speaker 1: if you've been in the UK market this year so far,
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  Speaker 1: you'd be up what eight and a half percent.
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  Speaker 2: Having taken the figures. But if we but yeah this, well,
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  Speaker 2: actually we're just almost a new high for the foot
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  Speaker 2: one hundred.
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  Speaker 1: I'm just going to it's going to double check on
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  Speaker 1: my handy Bloomberg app s and p two point six percent,
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  Speaker 1: now's back two point one seven percent, UK eight point four,
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  Speaker 1: France five point six, DAGs twenty point four. So you know,
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  Speaker 1: leadership has definitely swapped. I'm going to write that, write
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  Speaker 1: about that in my news letter this week. Everyone, so
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  Speaker 1: watching out for that.
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  Speaker 2: John, anything to add, Nah, we're closing the cap only
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  Speaker 2: another twenty years of performance, and boll Of made up
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  Speaker 2: for it right.
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  Speaker 1: In my little help from Rachel reeves for that. Abolished
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  Speaker 1: damn duty, just abolished, damn duty.
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  Speaker 4: Thanks for listening to this week's Marrin Dorks Money Debris.
• 13:58
  Speaker 4: If you like us, you rate, review, and subscribe wherever
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  Speaker 4: John Underscotepek.
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  Speaker 1: Our show is produced by Summersadi and tala Emadi. Sound
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  Speaker 1: Marin Money at Bloomberg dot Next