The London market discount is about performance, not geography

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Lower average profitability explains much of why UK companies are lower-valued than their US peers

Politicians, regulators and City grandees are all focused on revitalising the UK’s struggling stock market. The problem is two-fold: companies are disappearing and not enough new ones are arriving to make up for the losses. The market is shrinking at a pace that will dislodge the UK from its top spot in Europe, amid fears of a terminal decline. This phenomenon is a result of multiple factors.

Yet the market’s perceived discount remains as big as ever: the FTSE All-Share index trades on just 11 times forward earnings or near a 40 per cent discount to the rest of the developed world’s stock markets. This is down, in no small way, to the boom in US tech stocks amid a frenzy over artificial intelligence. The bald discount is hard to deny.

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