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Globalization of the stock market in London
October 12, 2009
The LSE and the global financial crisis 5 4. Structure of the LSE a. Growth prospects for 2010 6 Bibliography 7 2 .Table of contents 1. Numbers and statistics b. LSE s position in the global stock market 3 3 4 3. Introduction to the London Stock Exchange 3 2.
when looking at the past development. The first one is the Main Market for accomplished and well established companies. including an analysis of LSE s role and position in the global stock market.html http://www. a. which is comprised of smaller companies with a high growth potential. Structure of the LSE In this part the structure of the London Stock Exchange will be discussed. representing most of LSE s total market capital as well as its total number of companies.2 million GBP) the market capitalization has risen by 34.advfn.world-exchanges. 1.3 However. which is 6.3% less when calculated with USD).1 As globalization plays an important role in today s world. it should also be mentioned that the LSE is hardly matched by any other stock exchange when it comes to internationality and diversity.com/StockExchanges/about/LSE/LondonStockExchange.htm 3 http://www. one can see that since March 2009 (lowest point for market capitalization in recent times. there are 2 markets to be found.336. The second market is the Alternative Investment Market (AIM).3% less than in August 2008 (or 16.com/companies-and-advisors/main-market/main/market. 1 2 http://www.org/statistics/ytd-monthly 3 .170.londonstockexchange.3 million GBP in August 2009.571. Numbers and Statistics Total market capitalization The total market capitalization of the London Stock Exchange was 1. The numbers mentioned in this section are mostly from August 2009. providing a trading platform for companies from all over the globe. as it is consists of enterprises from almost 70 countries. Introduction to the London Stock Exchange The London Stock Exchange (LSE) has its roots in the 17th century and is therefore one of the oldest stock markets worldwide. stretched over 42 sectors. Within the LSE.2 2.117.1. What once began on London s streets and coffee houses became one of today s largest and well known stock exchanges.3 %.
the London Stock Exchange is one of the largest and most important ones in the world.londonstockexchange.248 domestic and 632 foreign companies. pp .pdf 8 London Stock Exchange (2009). which has roughly the same number of 4 5 http://www.2 million GBP.880 companies in August.413.world-exchanges. Trading peaked in May but then continued to decrease continuously until August.3 / 1.23 [http://www. b.8 For instance. proving its status as a truly global market. The reason for this diversity is often said to be language.999. compared with the New York Stock exchange.4% higher turnover value. This number is comprised of 2.org/statistics/ytd-monthly 6 http://www. The same period in 2008 saw a 40. According to the Global Financial Centres Index 6 (GFCI6) London is ranked first in total and also in almost every aspect and discipline that was looked at within the survey. but it is also important to mention here that the ratio was far higher in previous years (>140%). However.571.Number of listed firms The number of listed firms has been decreasing throughout 2008 and 2009 and has now reached a total of 2. For the calculation of the ratio.gov. this method had a lot of critics in recent years. With the amount of foreign listed companies and their diversity (over 70 countries) London surpasses most stock exchanges in internationality. LSE s position in the global stock market As previously mentioned.world-exchanges.com/companies-and-advisors/mainmarket/documents/brochures/bringingtheworldtolondon.org/external/pubs/ft/weo/2009/01/weodata/weoselgr.uk/NR/rdonlyres/4A05FE0F-4CD1-46EB-ADB5-84672ACC05FE/0/GFCI6.5 Market capitalization to GDP The market cap/GDP ratio is used to find out whether a market is overvalued or undervalued.aspx 7 http://www. the previously stated market capitalization from August 2009 and an IMF estimate6 of the United Kingdom s GDP (at current prices) will be used.7 This just emphasizes the importance and competitiveness of the LSE.13% This would mean that the UK market is overvalued. geography and the UK s long history of colonialism.4 Turnover value Value of share trading The total value of share trading for 2009 up to and including August was 1.502.cityoflondon.pdf] 4 . Bring the World to London .117.imf. resulting in the following equation: (1.791) x 100 = 111.org/statistics/ytd-monthly http://www.
which is also 5 . only 15. the market capitalization dropped about 40% during 2008. caused by the many defaults and bankruptcies of highly acclaimed banks. over the period starting from January 2007 and ending now. When compared to any other global or international stock markets index it is easily visible that this graph shows the same pattern. 3. the number of listed companies decreased continuously as some of them simply vanished and also the turnover value decreased drastically by 40% or more. whereas on the London Stock Exchange 22% are foreign.yahoo.com The graph above shows the development of the FTSE 100. the most distinctive being the enormous drop in October 2008. These are just a few examples of how the London Stock Exchange was affected by the crisis. the London Stock Exchange suffered from the global financial crisis. such as Lehman Brothers. As visible with the previously stated numbers.500 points in March 2009.6% are foreign. The LSE and the global financial crisis Just like every other major stock market. FTSE 100 January 2007 until now Source: http://finance. The lowest point reached was slightly above 3. London s best know stock index.listed companies.
13 In respect of this information it would be unwise to assume for the FTSE 100 to rise far above 5. pp. pp. not only because the UK will need longer to recover from the recession than other countries. The reason for all major stock indices . especially for such a long period. Historically. the increasing level of globalization.including London s . 128-150.10 To explain some of these effects in a more practical way and directed at the LSE one could just examine Lehman Brothers and their mini bonds. The Icelandic banking system for example invested a lot in these bonds and as a result went bankrupt.co.pdf] 10 V.telegraph. These mini bonds were sold globally. just like its name says. which has been followed since World War I and found to be positively correlated. since many indices are climbing lately. the severity of the crisis can be explained by herding models.eu/Global-systemic-crisis-New-tipping-point-in-March-2009-When-the-world-becomesaware-that-this-crisis-is-worse-than-the_a2567. even though some growth can be expected due to the weak British Pound.uk/finance/financetopics/financialcrisis/3147764/Financial-crisis-London-stockexchange-suffers-worst-fall-in-history. a recovery before the end of 2010 seems to be wishful thinking. Centre for Analytical Finance.co.700 points in 2007. Nevertheless.dropping so low is their interdependence and hence.html 9 6 .timesonline.leap2020.ece 13 http://www.html 12 http://business. leading to problems for Britain as well.000 as well. 1 [http://www. as many of the famous high-street chains were funded by the Icelandic banking system. which in this case should be a few years. which. Growth prospects for 2010 The future for the LSE still looks rather grim. 'Financial crises as herds: overturning the critiques'. My personal forecast would be slightly below 5. leading the index to a current 5. "Journal of Economic Theory" 119. Kehoe (2004).161 points still far below the peak of more than 6.000 points. therefore just accelerating the crisis. Furthermore. although it seems that way.cls. hence. Chari and P. which in case of an impending crisis means to sell. which basically say that people act in herds and base their decisions on what others do. it would be wise to assume that the effects of such a crisis or a bubble will hold on for as long as it took the bubble/crisis to build up. could explain some of this comovement. forecasting the future is impossible. Another theory that is worth mentioning here would be the spillover effect.dk/caf/wp/wp-105. affecting anyone who bought them. University of Aarhus (2002). However.uk/tol/business/industry_sectors/banking_and_finance/article6819955. This means that stabilization is not yet in sight.the point where the slow recovery began.12 but also because economic bubbles and crises usually follow a certain pattern. 11 http://www.11 4.9 This is of course not only the case for the UK and the US but also for other important stock markets. The co-movement of US and UK stock markets . One example would be the co-movement of stock indexes from the US and the UK.
Bibliography Literature V.org/statistics/ytd-monthly http://finance.com/companies-and-advisors/mainmarket/documents/brochures/bringingtheworldtolondon.pdf http://www.telegraph.htm http://www.org/external/pubs/ft/weo/2009/01/weodata/weoselgr.cityoflondon.ece http://www.gov.londonstockexchange.com/StockExchanges/about/LSE/LondonStockExchange.uk/finance/financetopics/financialcrisis/3147764/Financial-crisis-London-stockexchange-suffers-worst-fall-in-history.html http://www.advfn.londonstockexchange.com 7 .leap2020.uk/NR/rdonlyres/4A05FE0F-4CD1-46EB-ADB5-84672ACC05FE/0/GFCI6.co. 128-150 Internet (all websites accessed on October 11th) http://business. Chari and P.cls.aspx http://www. Kehoe (2004).dk/caf/wp/wp-105. 'Financial crises as herds: overturning the critiques'.world-exchanges. pp.com/companies-and-advisors/main-market/main/market. "Journal of Economic Theory" 119.timesonline.html http://www.html http://www.pdf http://www.yahoo.eu/Global-systemic-crisis-New-tipping-point-in-March-2009-When-the-world-becomesaware-that-this-crisis-is-worse-than-the_a2567.pdf http://www.co.imf.uk/tol/business/industry_sectors/banking_and_finance/article6819955.
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