Mark Shapland: Clamour to shut London's financial markets grows but there is plenty of evidence they're working fine

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London’s parks might not be the only public utilities locked down this week, the Capital’s financial markets could be too.

Over the weekend the FCA told listed companies to stop putting out preliminary financial statements – essentially telling them to keep shtum over coronavirus and stop further panic. The body even went as far to point out there is no legal requirement for the updates.

This inevitably sparked rumours that the next step was to shutdown the London Stock Exchange altogether.

Over the past two weeks the FTSE 100 has dropped by a mammoth 2500 points as the government has ordered the shutdown of all society and so no one is flying, drinking or eating as normal.

The rational therefore for lockdown is logical, the move would give investors and companies a two to three month breather to compose themselves and think more calmly about how the rest of the year is likely to pan out.

There is also an argument that many listed firms have pivoted to help the government and so their valuations mean little at the moment. Defence companies are being asked to make ventilators, consumer firms hand sanitiser and private hospital groups have been taken over to serve the NHS. No investor can value a company that is temporarily performing a different task.

But those in the “stay open” camp – which includes former Bank of England Governor Mervyn King – say that closure would lead to further panic as investors would be left trapped in investments and have no exit.

Being locked in might be OK for a long term pension fund, but for an individual or institution in desperate need of cash the scenario would be distressing.

Meanwhile market purists believe valuations never lie and the steep sell offs are right and true. Many investors deeply mistrusted the bull run over the past ten years, propped up by quantitative easing and addictive monetary policy. Inflation did not take hold on every day products like bread and milk as QE never made it to the man on the street but it created big asset price bubbles – many of which have finally been pricked.

Some in the City see this sell off as the great flush that should have taken place in 2008.

Finally there is some evidence that equity markets are still working fine.

Last week Hotel Chocolat managed to raise £22 million to cover the cost that all its shops and cafes would stay closed for some time. The raising showed that backers understood its predicament and means Hotel Chocalat probably won’t have to go cap in hand to the government or the BoE for a bailout loan.

Raising money is, after all, the only real reason the London Stock Exchange exists. 

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March 24, 2020 |
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