When a key policy of US president Donald Trump features highly in the global press and wider media, regardless of the content, he should be over the moon. However, could his presidency, and his aura, remarkably be the source of a welcome unblocking of UK equity capital markets – and the real estate sector with them? If so, that would be a big, indirect positive surprise few had considered before Trump’s defeat of rival candidate Kamala Harris in November 2024.
Clive Black
UK equities, along with many other international exchanges, have suffered due to a lack of liquidity for some years, which has deflated valuations. This has also presented some rich pickings for often foreign acquirers, one example being US private equity behemoth KKR’s bid for UK health-centre-focused Assura. Understandably, this is raising eyebrows in some quarters as to its desirability with regard to the delivery of British health policy. There has also been a shrinkage of the number of listed firms, as a pipeline of new issues has been somewhat stymied.
The relative malaise of the London Stock Exchange has also corresponded with a much broader phenomenon in global financial markets for some years, which became dubbed ‘US exceptionalism’. The sheer gravitational pull of the US has seemingly attracted massive and disproportionate capital flows, be that into its treasury bonds, currency or equities in recent years.
These flows have driven share values ever higher, as manifested most profoundly in the case of the ‘magnificent seven’ technology-related firms, whose market capitalisations are more substantial than the gross domestic product of many considerably sized nations.
We see capital domiciled within and outside the US seeking a new home for a variety of reasons
Volatility has been one buzzword used to characterise Trump’s reign since January – yes, it has only been five months. Another buzzword has been uncertainty. The latter has worked against the perception that US treasury bonds are the safest financial instrument, the dollar the world’s primary reserve currency and US equity markets the safest place to invest.
Stars and strife: capital flowing out of the US due to Trump’s tariffs may find a safe haven in UK property Shutterstock / Phil Mistry
Accordingly, Trump’s behaviour has come under greater scrutiny and the reality of his presidency to date is much rhetoric but little delivery. He has not ended the war in Ukraine nor the pummelling of Gaza and wider Middle East discord. He has taken on the global bond market and had a ‘Liz Truss’ moment. He blinked and backed down in his tariff plan with the world, most notably China, the only trade deal to date being with the UK, so his credibility is becoming materially challenged.
Robert Armstrong, writing in the Financial Times, brilliantly characterised Trump as the ‘TACO’ president: ‘Trump always chickens out’.
Tariffs slow growth
What is ahead for the US and global economy remains to be seen, but tariffs are still elevated compared with before Trump’s second presidency, which is likely to slow growth. A stiff debate persists in the US as to whether inflation will creep higher, so making base rate reductions more difficult, and what this all means for domestic employment.
In these respects, Trump also blinked in his potential showdown with US Federal Reserve chairman Jerome Powell. All this needs to come out in the wash but, correspondingly, we are probably through peak US exceptionalism.
Bringing this all back home, we see capital domiciled within and outside the US seeking a new home for a variety of reasons, not least to cash in on profits and recycle to better valuation metrics elsewhere. European stock exchanges have been perhaps a surprise initial beneficiary of such moves, which also embrace elevated defence expenditure, it should be said.
While this is so, with the UK appearing to be potentially the least dirty shirt in the launderette – certainly compared with China, the EU and the US just now – there may just be a realistic hope for capital flows to increase liquidity in the London equity market, boost valuations and improve equity issuance. All of which should also benefit the listed domestic real estate scene. Thanks, Big Donald!
Dr Clive Black is vice-chairman of Shore Capital Markets
