Brexit has ruined the stock market and even returning to the EU won't fix it – Byline Times

Brexit has 'destroyed' London's stock market and the 'consequences have been disastrous', a leading economics author has said, while suggesting the level of underperformance is so 'serious and astonishing' that it is expected to make headlines and be a source of “agonizing debate” in parliament and the media.

Simon Nixon, former editor-in-chief of The temperatureformer chief European commentator of the Wall Street Journal and the author of The wealth of nations Substack, gave a sobering analysis of Britain's financial failings in recent Signature Times Podcast, out now.

He spoke with host Adrian Goldberg after posting an article on April 8 titled: “How Brexit destroyed the stock market” – who called the decline so “shocking” that it is no longer “a global humiliation but a national crisis.” And he warned: “Bad policy choices threaten to make the situation worse. »

“Sometimes you don't appreciate what you have until it's gone. How long before the British wake up to the national disaster unfolding in the stock market,” Nixon asked at the start of his message. Rather than an example of the “British exception”, the FTSE 100 is now “the exception” to a global recovery, he noted, explaining that since the start of January it has only risen by 2 .4%. US stocks are up almost 10%. Japan more than 18%. Germany 9%.

But slowness and stagnation are nothing new: British stocks have “significantly underperformed compared to the rest of the world since the Brexit referendum,” he wrote. As an example, Nixon noted on his Substack that an investment of 100 in the FTSE 100 in June 2016 would now be worth 118. The same investment in the United States would be worth 250; Italy, 189. UK stocks currently trade at a 20% discount to the broader European market on a price-to-earnings basis and a 15% discount on a price-to-book basis – both close to their lowest levels in decades, Nixon added. Before Brexit, they were trading at a premium. Poor valuations in London have also contributed to the collapse in the number of listed companies – down almost 50% in 2023 alone – and new listings have “almost completely dried up”.

Nixon's assessment of the current state of affairs: “The stock market is sending a devastating message about how Britain is perceived among global investors.” No amount of bluster can hide the fact that Britain is a global outlier, and no one should be under any illusions about the consequences for the economy if this underperformance continues. This is no longer just a concern for a few well-paid City bankers. This is a question that goes to the heart of the British economic model and its long-term prospects. »

Nixon told the Signature Times Podcast that the success of the stock market has made London “the financial center of Europe and the world”, what is happening today “is a question of enormous consequence” and has “profound implications for the future British economic model “.

“It means that part of the British economic model, which people took for granted, is changing. And that's something that we have to face and think about.

In his Substack article, Nixon said the stock market was being “deglobalized, a historic reversal of a decades-old trend.” Investors, he told the Signature Times Podcast, are now “sulking” London because of Brexit and the “political chaos” that accompanies it: “Britain has become an unattractive and risky place to invest your money”. Now that money is managed globally and London makes up about 4% of the global equity pool, “it's easy to do without it if you just don't like the way it looks.”

“The irony is that it was the very success of the stock market that sowed the seeds of the current crisis,” Nixon wrote on his Substack where he went on to explain how, as London’s wealth grew, “the “Resentment across the world was also growing.” countries, fueled by the 2008 global financial crisis and subsequent bailouts.”

The City's wealth has never “sunk”, inequality has widened and “this resentment was undoubtedly a key factor in the Brexit vote in 2016, when half the country took revenge on what 'she considered an arrogant global elite'.

The stock market, Nixon explained, not only helped define the British economy, but it also shaped policy “contributing to this unbalanced economy” and became, in a sense, “a victim of its own success.”

While Brexit voters were partly fueled by “resentment”, Brexit supporters were ignorant and took the City for granted. Nixon said: “I think they came to assume that it was something inherent in Britain, that it was a British exception that Britain had just reclaimed the City, as it always has.

Nixon instead explained to Signature Times Podcast“The City now depends less on British exceptionalism, but in reality depends on its anchoring in this giant single market. And it was something that was not understood. This was clearly not understood, because Boris Johnson and his Brexit deal did not even try to find an agreement for the City.”

On June 23, 2016, 51.9% of Britons voted to leave the EU, but this did not actually happen until January 31, 2020. The stock market's underperformance, Nixon said, ” really started to take hold in June 2016, and we never recovered.”

The demise of the stock market, Nixon told the podcast, endangers an entire ecosystem, including lawyers and bankers, accountants, brokers and PR advisers who are also “sitting there looking at profit pools empty”.

Goldberg pointed out that the British public, grappling with a cost-of-living crisis, would probably not have much sympathy for people in well-paid jobs, before Nixon explained that without their contributions, government spending in terms of public services would be affected, thus worsening the situation. everyone.

Nixon said he had written about the stock market's underperformance since Brexit, and the response had been that once the deal was done “the gap would close”, or that once the Conservatives “would have gotten a stable government,” foreign bidders” enter, “but that’s not happening, and it hasn’t happened.”

The journalist said debates over regulations and tax incentives were irrelevant because “this is primarily a problem of sentiment and it's hard to see how you can escape it.” The problem, Nixon said, is “something that people in the city have been concerned about for several years.”

Goldberg asked Nixon if returning to the European Union could help solve the problem, but the author did not think that would ever happen, and explained that even “to get to that point it would take years and would be extremely politically contested, creating more conflict.” instability.” Nixon noted in his Substack that the consequences of Brexit would only “get worse” as the grace periods in Johnson's exit deal expire and European regulators attempt to attract more London business.

Nixon said Labor's challenge when it becomes – in all likelihood the next government – ​​will not be to solve the problem, but to stop things “getting worse”.

And the biggest danger, Nixon writes on Substack, is that history repeats itself, that “the stock market will shape Britain's future, just as it did its past.”