Foreign investors are warming to London''s unloved stocks


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Britain''s stock market finally appears to be reversing years of underperformance against the rest of Europe, as a UK/U.S. trade deal, lighter regulation and cheap stocks deliver juicy returns that are starting to attract foreign investors.
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For years, London’s stock market has struggled to maintain its status as a premier global financial center. The FTSE 100, the benchmark index for the UK’s largest companies, has lagged behind major indices like the S&P 500 in the United States or even European counterparts such as France’s CAC 40. A combination of factors has contributed to this decline, including Brexit-related uncertainties that have deterred investment and prompted some firms to seek listings in more favorable jurisdictions. High-profile companies, particularly in the technology and growth sectors, have often chosen to list in New York or other markets perceived as offering better access to capital and higher valuations. Moreover, domestic pension funds and institutional investors in the UK have reduced their exposure to local equities, favoring international markets or alternative asset classes, further exacerbating the lack of demand for British stocks.
However, the tide appears to be turning, albeit slowly, as foreign investors begin to see value in the undervalued UK market. One of the primary attractions is the significant discount at which many British companies are trading. Compared to their counterparts in the US or Europe, UK stocks often have lower price-to-earnings ratios, making them appealing to value investors hunting for bargains. This valuation gap has become particularly pronounced in sectors such as energy, financials, and consumer goods, where UK firms are seen as offering solid fundamentals at a fraction of the cost of similar companies elsewhere. For international investors with a long-term perspective, this presents an opportunity to acquire stakes in well-established businesses at a discount, with the potential for substantial returns if market sentiment improves.
Another factor drawing foreign capital back to London is the relative stabilization of the UK’s political and economic environment. After years of turbulence marked by Brexit negotiations, multiple changes in government leadership, and fiscal policy missteps, there is a growing sense that the country is entering a period of greater predictability. The resolution of key Brexit-related trade issues, particularly with the European Union, has alleviated some concerns about the UK’s economic isolation. Furthermore, the current government’s focus on fostering economic growth and rebuilding investor confidence through targeted reforms is resonating with overseas players. While challenges remain, including inflationary pressures and the lingering effects of global economic slowdowns, the perception of the UK as a high-risk destination is gradually diminishing.
Efforts to revitalize the London Stock Exchange itself are also playing a crucial role in attracting foreign interest. Policymakers and market regulators have recognized the need to modernize the LSE to compete with other global exchanges. Initiatives to streamline listing rules, reduce bureaucratic hurdles, and encourage more companies—particularly in high-growth sectors like technology—to list in London are gaining traction. For instance, reforms aimed at making it easier for innovative startups and scale-ups to access public markets are seen as a direct response to the trend of UK firms listing abroad. Additionally, there is a push to enhance the visibility of London-listed companies to international investors through marketing campaigns and partnerships with global financial institutions. These measures, while still in their early stages, are beginning to shift perceptions of London as a viable destination for capital.
The renewed interest from foreign investors is not limited to specific sectors but spans a wide range of industries. Traditional sectors such as oil and gas, which have a strong presence in the FTSE 100, are benefiting from global demand dynamics and geopolitical factors that have driven up commodity prices. At the same time, sectors like healthcare and industrials are also seeing inflows as investors seek exposure to companies with stable cash flows and resilient business models. Even the much-maligned retail sector, which has faced headwinds from changing consumer behaviors and economic pressures, is attracting attention from bargain hunters who believe that the worst may be over for some of the UK’s iconic high-street brands.
Despite this growing optimism, challenges remain for London’s stock market. One of the most significant hurdles is the continued outflow of domestic capital. UK-based institutional investors, including pension funds and asset managers, have been steadily reducing their allocations to domestic equities in favor of international diversification. This trend, driven by a desire to mitigate risk and seek higher returns elsewhere, has left a void that foreign investors are only partially filling. Without a reversal of this domestic disinvestment, the recovery of London’s market may remain incomplete. Additionally, the global economic environment poses risks, as rising interest rates, geopolitical tensions, and supply chain disruptions could dampen investor appetite for riskier assets, including undervalued UK stocks.
Another concern is the pace of corporate delistings and relocations. While reforms are underway to make London a more attractive listing venue, some companies continue to explore opportunities elsewhere, particularly in the US, where access to deeper pools of capital and more favorable regulatory environments are often cited as advantages. High-profile departures in recent years have dented confidence in the LSE’s ability to retain top-tier firms, and reversing this trend will require sustained effort and tangible results from ongoing reforms. For foreign investors, the risk of further delistings could temper enthusiasm, as it raises questions about the long-term viability of London as a global financial hub.
Nevertheless, the influx of foreign capital signals a potential turning point for London’s unloved stocks. Investors from regions such as North America, Asia, and the Middle East are increasingly viewing the UK market as an opportunity to diversify their portfolios while capitalizing on undervalued assets. Sovereign wealth funds, hedge funds, and private equity firms are among the players taking a closer look at British companies, with some engaging in active discussions for mergers, acquisitions, or significant stake purchases. This activity not only injects much-needed liquidity into the market but also serves as a vote of confidence in the UK’s economic prospects.
Analysts caution that while the signs are encouraging, the recovery of London’s stock market is likely to be gradual rather than sudden. Building sustained momentum will require a combination of favorable economic conditions, successful policy implementation, and a shift in both domestic and international investor sentiment. For now, the growing interest from foreign investors represents a glimmer of hope for a market that has long been in the shadow of its global peers. If these early green shoots of recovery are nurtured through continued reforms and strategic initiatives, London could reclaim its position as a leading destination for equity investment.
In conclusion, the warming of foreign investors to London’s stocks in 2025 reflects a confluence of factors, including attractive valuations, stabilizing political and economic conditions, and proactive efforts to modernize the LSE. While significant challenges persist, such as domestic disinvestment and the risk of further corporate exits, the renewed international interest offers a pathway for revitalization. For a market that has endured years of neglect and underperformance, this shift in sentiment could mark the beginning of a long-awaited renaissance, provided that the momentum is sustained through thoughtful policy and market-friendly measures. As global investors continue to explore opportunities in the UK, the coming years will be critical in determining whether London can truly turn the page on its recent struggles and reassert itself as a powerhouse in the world of finance.
Read the Full reuters.com Article at:
[ https://www.reuters.com/business/finance/foreign-investors-are-warming-londons-unloved-stocks-2025-07-18/ ]