The UK needs to view London’s capital markets as a “driver of the domestic economy” rather just a venue for share trading, the boss of the London Stock Exchange said yesterday.
At an event hosted by investment bank UBS, Julia Hoggett, who has led the exchange since 2021, called on pension funds to back British stocks and said exchanges should be seen as a core part of the domestic economy.
“It’s weird that in London, you can be in one of the only countries in the world where you actually have to make the argument for treating our capital markets as tools of national economic sovereignty,” Julia Hoggett said.
“They do it in the US. They do it in China. They do it all over the Middle East. They do in India. They do it in the European Union…One of the simple realities of this changed environment is that we need to reflect and recognise that context,” she said.
Pointing to research commissioned by the Capital Markets Industry Taskforce (CMIT), a group of City grandees she leads, Hoggett said domestic pension funds were “structurally underweight” in UK markets compared to peers around the world.
CMIT’s research suggests that pension schemes in France and Italy were around 900 per cent overweight in domestic equities relative to the size of the market. In Japan, Australia and South Korea the equivalent figure stands between 1,000-3,000 per cent.
In the UK, by contrast, the largest funds were 40 per cent underweight relative to the size of the market. She said the withdrawal of domestic capital from UK equity markets had created a “lovely self-referential logic”.
“As you strip money out of a market, the risk is it doesn’t perform as impressively, and then it becomes the justification for continuing to strip money out of the market,” she said.
“Now that is something where I think we need to decide as a country, do we want to address that in order to address the productivity challenges and the investment challenges and the investment gap that we have? Or do we not? I know which side I’m on,” she said.
The UK has suffered from stagnant productivity growth since the financial crisis, which many attribute to the persistently low rate of business investment.
Hoggett’s comments come ahead of the Chancellor’s Mansion House speech later this week, where Rachel Reeves will lay out her agenda for the UK’s financial services sector.
Among a slew of other measures, Reeves is likely to announce further details of plans to consolidate the UK’s fragmented £354bn local government pension schemes.
These schemes are often overseen by dozens of managers and local politicians, leading to higher costs for savers and minimal investment in productive assets like venture capital, life sciences and infrastructure. Backers hope consolidating the sector will free up billions in extra investment.