Investing in the UK Stock Market

Last year, the UK received almost twice as much VC investment into its startups as Germany or France. That’s a positive sign as the country seeks to assert its established European tech dominance.

Depending on individual investment goals and capacity, there are several ways to invest in UK tech firms. One popular option is to invest via venture capital trusts (VCTs).

Foreign Investment

For years, London’s stock market attracted an outsized share of investor capital relative to the size of the UK economy. In fact, at one point in 2000, UK-listed equities accounted for 11% of the MSCI World Index, Citigroup noted.

However, fears for London’s future resurfaced this week after chipmaker ARM announced that it would hold its IPO on Wall Street and CRH, the world’s largest building materials supplier, said it may move its primary listing to New York.

Despite the drop in 2022 FDI project numbers, UK investment continues to be attractive, says EY. For example, sales and business services appeared in the top-three FDI activities in all nine English regions and was the leading activity in seven of them, and manufacturing was the second-leading activity in six of the areas.

If you’re interest in investing in university spinouts, Louis Coke of Charles Stanley suggests looking into IP Group (LSE: IPO), which takes ideas developed at universities and turns them into “great businesses.” The company has relationships with 17 universities and stakes in the venture-capital arms of Oxford and Cambridge.

State-Owned Enterprises

After extensive privatisation during the Margaret Thatcher administration, a handful of statutory corporations remain in operation in the UK. These include the Central Electricity Generating Board, British Rail and Royal Mail. Some of these companies have become major players in the stock market and have attracted substantial investment.

A recent report co-authored by Dealroom and Tech Nation highlights the growing strength of the UK tech ecosystem. The UK ranks first in Europe for the number of unicorns and startups, and leads on both funding and exit value.

The APPG hosted a discussion this week with William Muecke, the co-founder and CIO of global cannabis investment firm Artemis Growth Partners. During the session, he discuss the investment potential of the CBD and industrial hemp markets, which is being hamper by the UK’s restrictive Proceeds of Crime Act (POCA). Mr. Muecke suggested that amending POCA to allow for listings could be relatively straightforward and would help the industry achieve its full potential.

Taxes on Investments

Investors may be wondering whether gains from UK investment bonds are taxable. The gains of these policies are taxed in the same way as other capital investments in the UK, and the relevant law is contained in Chapter 9 of the Income Tax (Trading and Other Income) Act 2005.

A public limited company is the British equivalent of a publicly traded corporation in the United States, and can be bought or sold on the stock market. These companies are listed on the London stock exchange and have the acronym PLC.

The UK ranked second in EY’s 2023 ranking of European countries for the ability to attract foreign direct investment projects, even though overall project numbers fell in the year. Nevertheless, the UK still topped the rankings for new projects and was far ahead of France and Germany in terms of jobs created per project. It also scored highly on sustainability, with investors expressing interest in the country’s potential for decarbonising its energy supply and developing an ecosystem of innovative cleantech businesses.

Regulatory Environment

The UK has become a magnet for early-stage technology investors. In 2021, the country was second only to the United States in the amount of capital that flowed into Europe’s tech ecosystem, largely thanks to foreign investments and a weaker pound.

Investors are looking to capitalize on the sector’s boom by investing in VC funds that support growth-stage companies seeking Series C funding or higher. These include Investec Digital Ventures, which has invest in companies including the artificial intelligence platform Plural and transfer-service provider Wise, and Latitude Investments, which backs Oxford Nanopore Technologies, which makes tiny silicon tubes that can inserted into high-tech electronic devices to analyse molecules.

Responding to the Hill Review, the FCA is in the process of overhauling capital markets regulation to promote innovation and make London a more attractive listing venue. The changes, which will come into effect in 2024, will reduce the regulatory burden for premium listed firms by introducing a new combined listing segment and moving toward a disclosure-based approach to determining whether companies are eligible to list on a standard basis.