# Mid-year musings: the UK stockmarket
_The UK equity market has been in structural decline for years — shrinking listings, no IPOs, and a wave of foreign takeovers. I’ve written about this before, but I wanted to return to the topic and set out clearly why, despite everything, I still believe the UK market is on the cusp of a long-overdue recovery._
Neil Woodford · 10 July 2025 · 5 min read
---
The halfway point of 2025 provides a good opportunity to reflect on some things that have been needling me for some time and about which I have wanted to write. The first of these themes will be familiar to regular readers of _Woodford Views_, but in this update, I wanted to revisit, unapologetically, the UK stock market.
The stock market should be seen as a barometer of the underlying health and confidence in the economy. If the index is rising, that would tend to reflect the expectation of a growing economy, but arguably more important from a longer-term perspective would be the health of the IPO market, the number of listed companies raising capital from secondary listings, and whether the number of listed companies is increasing.
In summary, the best part of two decades of underperformance has left the UK stock market trading on a very depressed rating by reference to its history and in comparison with international peers. Apart from the obvious point that this provides investors with an attractive investment opportunity, the consequences of this difficult recent history go well beyond the opportunity to buy UK-listed assets below their intrinsic value.
Years of government neglect, poorly thought-through accounting reforms and damaging regulatory changes have also undermined the fabric of the UK’s equity market ecosystem. This has left the UK equity market in a perilous position where businesses are unable to raise capital, listed companies are being acquired at an unprecedented rate, there are virtually no IPOs, and many of its leading constituents are seeking listings on other markets. Reflecting these challenges, Statista estimates that the number of companies listed on the London Stock Exchange has fallen by just under a third in the last ten years, with the rate of shrinkage accelerating noticeably in the last two years.
According to recently published Peel Hunt research, there were 31 bids in the UK market in the first six months of 2025 with a market cap over £100mn, with a combined value of £24bn. In contrast, there was only one IPO. In the twelve months of 2024, there were 45 bids with a combined value of £52bn and only three IPOs. By comparison, the FT reported yesterday that 208 companies applied for primary or secondary listings on the Hong Kong Stock Exchange in the first six months of this year alone.
In the face of this crisis, the government and the regulator devised an ingenious plan to overhaul the listings regime, which the FCA was especially pleased with, describing it as the biggest change to these rules in three decades. These new rules have been in place for exactly a year, and as I anticipated, have had absolutely no impact on the number of companies seeking a listing in the UK. Unfortunately, this misplaced solution to the market’s problems is the equivalent of seeking to attract more bathers for an empty swimming pool by installing a new diving board.
The problem here is twofold. First, we have a scaled domestic institutional investor base unwilling to embrace UK risk capital (DB pension schemes have eradicated UK equities from their portfolios) and secondly, an equity market ecosystem that has been effectively dismantled by MIFID reforms, and particularly by MIFID II, which was introduced in 2018. The symbiotic relationship that once existed between all companies, especially small and midcap businesses, and their brokers and institutional investors, was destroyed by these regulatory reforms and has left many listed companies in London feeling effectively trapped and orphaned.
Interestingly, it appears that both the regulator and the government understand the importance of a thriving equity market ecosystem to the economy. For example, the FCA stated in the same press release that announced the listing rule changes that “a thriving capital market is vital in delivering investment to growing companies”, and Rachael Reeves talked about reinvigorating the UK’s capital markets and the need to attract the most innovative companies to list here. I presume both parties are now scratching their heads on this issue, given that their solution to this problem has failed to deliver the invigoration that was hoped for.
My humble suggestion is that both parties start by properly diagnosing the problems confronting the UK equity market and only then start to think about the solutions. Importantly, perhaps the most difficult step in that process will be for the regulator to finally acknowledge the harm inflicted on the UK’s market infrastructure by the MIFID reforms.
To give some credit to the Chancellor, she does appear to be working this out. In recent speeches, she has flagged the issues of mandation in relation to institutional investment in UK equities, and the latest proposed changes to cash ISA limits might also be seen as part and parcel of a range of potential solutions.
The issue of mandating investment in UK equities is complex, and I understand the widespread reservations about it. Not least the point that the government should not be getting involved in the asset allocation decisions of the investment managers of these vast investment funds, and of course, as my favourite economist said, we should also be careful what we wish for in seeking solutions to this problem.
The funds (DB pension schemes) that might be subject to these suggested “recommendations” are also the biggest institutional buyers and holders of UK government debt. Changes in their asset allocation decisions might have important implications for yields across all maturities, given that the supply will inevitably keep rising.
My observations on this complex and challenging issue are as follows.
1. We should remember that DB pension schemes sold their vast holdings of UK equities not because they thought this was in the best interests of their beneficiaries, but because it was in the best interests of their corporate sponsors. Those advocating for the government to stay out of asset allocation decision-making should remember how we got here before jumping on purist bandwagons.
2. These schemes have, and will continue to benefit from huge tax subsidies funded by all taxpayers.
3. Every government and relevant regulator should be very concerned about an unequivocally failing UK equity capital ecosystem, and the damage done by MIFID reforms must be acknowledged.
4. The government should encourage all funds that receive UK taxpayer-provided subsidies to invest in the domestic equity market. It needs all the help it can get. Questions need to be asked of those funds that don’t own or support the UK equity market but still own alternatives and overseas equities. The extraordinary position the UK finds itself in on this issue in comparison with its peers needs to be addressed in this debate.
5. Profoundly undervalued listed UK businesses will continue to attract acquirers from across the world. This, alongside an economy that will outperform consensus and, in turn, deliver growing domestic earnings, will eventually catalyse UK and international fund asset allocators to increase their UK weightings.
6. Relatively modest regulatory reforms could help invigorate the UK equity capital market and rebuild the infrastructure essential to a thriving capital market ecosystem.
In other words, all is not lost for the UK equity market. It is battered and bruised after twenty years of neglect, but it is about to surprise all those who have, understandably, written it off. I continue to believe that it will outperform other developed economy equity markets for some time to come.