UK investors pull out of London stock market at record pace

Home traders have fled the UK inventory market at a report fee this 12 months, lacking out on a storming rally wherein London’s fairness market has outpaced each US and European bourses.UK traders have pulled about £26bn from London-listed equities to this point in 2025, in keeping with EPFR knowledge, the very best stage on report for a calendar 12 months, as measured by outflows from funds investing within the UK.However the FTSE 100 is on target for its greatest 12 months since its rebound from the worldwide monetary disaster in 2009, pushed partially by overseas traders trying to diversify their publicity past the US and to comparatively low-cost valuations on the London market.“The UK fairness market is the surprising winner of 2025, however UK traders don’t appear to care,” mentioned Emmanuel Cau, head of European equities technique at Barclays.UK traders pulled £3.4bn from London-listed shares by way of fund withdrawals in October alone, the most important month-to-month outflow of the 12 months. Analysts attributed the strikes partially to subsequent week’s tax-raising Finances, which has prompted traders to promote out of the market and increase their money reserves.The late timing of the Finances had triggered “plenty of uncertainty about what totally different taxes may come, and it’s given home traders extra trigger for concern”, mentioned Simon Gergel, chief funding officer for UK equities at Allianz International Traders. “Once you get a heightened sense of impending doom, it’s comprehensible that individuals take a bit of cash out,” mentioned Charles Corridor, head of analysis at UK funding financial institution Peel Hunt. “It’s a little bit of danger aversion.”Based on knowledge from funds community operator Calastone, UK traders’ bearishness on home shares can also be a part of a broader transfer out of all fairness markets this 12 months in favour of lower-risk property equivalent to money and stuck revenue. Regardless of the outflows, the FTSE 100 is buying and selling near a report excessive at close to 10,000 factors, having climbed 16.3 per cent this 12 months. That compares with a 12.6 per cent acquire in Wall Avenue’s S&P 500 index and a ten.7 per cent rise within the Stoxx Europe 600 index, in native foreign money phrases.UK shares have been buoyed by an enormous rally within the banking sector, in addition to beneficial properties for mining and defence corporations, all of that are nicely represented within the blue-chip London market.As traders have fretted over a possible bubble in hovering synthetic intelligence shares in current months, the UK has provided an affordable strategy to diversify publicity outdoors the US. The FTSE 100 trades at a price-to-earnings ratio of about 17.4 instances, in contrast with 27.3 instances for the S&P 500, in keeping with LSEG knowledge. “In a world the place the [UK] index is now providing one thing barely totally different to the US, traders who need some diversification are discovering rather a lot to love,” mentioned Michael Stiasny, head of UK equities at M&G. International traders have added about £15bn to their UK publicity this 12 months, as measured by fund flows. Nevertheless, this has been pushed by higher curiosity in broad, non-US inventory publicity that features the UK — for example via pan-European or international ex-US portfolios — relatively than demand particularly for UK-focused funds.The FTSE 100, which derives greater than three-quarters of its revenues from abroad, is usually not thought-about by traders to be a barometer for the well being of the UK economic system. Prospects for UK development are extra carefully tracked by the mid-cap FTSE 250 index, which is up simply 3.8 per cent this 12 months.“Persons are shopping for UK as a strategy to diversify their publicity . . . no one is shopping for UK shares as a result of they suppose the UK is a superb place to take a position,” Cau mentioned. The information highlights a broader pattern amongst home traders to exit the UK inventory market, with outlined profit pension schemes having lowered their allocation to the London market lately.Lagging efficiency till this 12 months has triggered UK shares’ weighting in international benchmarks to fall to new lows. In consequence, they profit much less from the large flows of passively invested cash being allotted to broad indices. UK equities made up 6.9 per cent of the MSCI All World index a decade in the past, however the determine has now fallen to three.2 per cent. The EPFR knowledge underlines the problem for the UK authorities in attempting to spice up the London inventory market by encouraging home traders to return.To enhance retail flows to UK equities, “we have to see improved family sentiment”, mentioned Sharon Bell, senior equities strategist at Goldman Sachs. “UK traders aren’t promoting UK equities to purchase overseas equities — they’re decreasing fairness publicity altogether.“We expect crucial factor is to encourage a shift into higher-returning property, equivalent to fairness . . . UK traders have a home-bias regardless, so any enhance in fairness allocation will movement to the UK to a excessive diploma,” Bell added. In a letter to Rachel Reeves earlier this month, the chair and chief government of the London Inventory Alternate Group known as on the chancellor to make pension schemes’ tax incentives contingent on a 25 per cent allocation to UK property.