For the last little while the operators of the Euronext Dublin have been mounting a campaign to persuade the Irish government to take action to encourage more companies to join and maintain a listing on the bourse. A small number of important stocks have fled in the past few years for Wall Street or agreed to buyouts, taking with them liquidity and high-profile names. So far, the effort for reform has not borne any fruit.
We’ve seen the same trend to some extent in the UK, too, where there’s been the failure to land marquee flotations like Arm. And it’s no better across the continent; the number of initial public offerings in Europe declined again in 2023, down by about a third. While new listings also dropped in the US, its stock markets hit fresh highs in 2023 and continue to do so this year.
Perhaps an alternative way of looking at this is to ask why the US’s capital markets are proving so attractive to companies. If you were a European or UK company with growth prospects in the US, why would you stay listed locally? The US pool of potential investors is greater and valuations are consistently higher. It’s win win.
EU’s slow lane
There are plenty of obvious reasons why Europe lags. A fragmented and patchwork regulatory regime makes it difficult for investors to deploy their cash across borders, even if they have the risk appetite. We also have structural differences. There are many small firms across the continent unsuited to public markets as well as larger, family-owned companies that want to maintain their private status.
The EU’s capital markets union progress is creeping along
None of these challenges are new, or insurmountable, but where is the sense of urgency to fix them and introduce reform? The EU’s capital markets union progress is creeping along, as it has been for years.
In the meantime, US companies move from strength to strength. Investors are reaping the returns of their faith in innovation and entrepreneurship emerging from Silicon Valley. The value of Apple exceeds that of Germany’s entire DAX index.
The US has its ‘Magnificent Seven’ stocks – Apple, Nvidia, Amazon, Microsoft, Meta, Alphabet and Tesla – and while Europe has its equivalent, dubbed ‘Granolas’ (GSK, Roche, ASML, Nestle, Novartis, Novo Nordisk, L’Oréal, LVMH, AstraZeneca, SAP and Sanofi), none are currently in the top 10 most valuable. It’s competition in name only.
Future innovation
This does actually matter and will have an impact on Europe’s future. The next generation of global companies have once again been founded in the US. They will and already lead key in areas like artificial intelligence. They will boost US productivity, employment and wealth and leave Europe struggling, as it has been for years, with anaemic growth.
There are cutting-edge leaders who could easily challenge US dominance
It’s not for the lack of trying on behalf of European companies. There are cutting-edge leaders in renewable and sustainable energy, pharma and fintechs who could easily challenge US dominance.
What they need is a reason not to look across the Atlantic. That can only happen if we develop our capital markets and take the efforts to address the underlying barriers hindering their growth. It involves simplifying the regulatory environment; promoting a culture of entrepreneurship and risk-taking among institutional investors; investing in pan-European market infrastructure; and even accepting US-size executive compensation packages and dual class share structures. If we don’t, we’ll continue to lose our best and brightest prospects.
