The FT has reported that:
Britons have the lowest appetite among their G7 peers for investing in the stock market, according to a new study that showed personal wealth in the UK was mostly tied up in housing, pensions and cash.
UK savers invested just 8 per cent of their wealth directly into equities and mutual funds compared with 33 per cent in the US and an average of 14 per cent across the remaining five G7 nations, according to an analysis of national accounts by Abrdn.
There are two ways to look at this. One is that the British investor is enlightened and avoids the casino. The other is that they should, like others, want to join the gambling pit.
Some background information will help here.
Firstly, there are incredibly few new share issues in the UK, USA or pretty much anywhere else that are intended to raise new funding for actual capital investment in production or the creation of employment. In fact, companies repurchasing shares is a lot more common than companies issuing shares. Funding actual investment with loans is vastly more likely than it is with share capital. As a consequence the majority (most likely more than 99%) of all share (so-called) investment actually involves the purchase of shares already in issue, whose numbers are limited in supply by design, meaning that it is artificially engineered that their price is most likely to rise until, of course, the time that they do not. It would seem that UK investors have realised this, and those in other countries, and both especially the USA, have not.
Secondly, what this means is that the reluctance of UK savers to actually put their money into UK stock markets has almost no impact at all on activity in the real economy, to which stock exchange activity is almost unrelated.
Thirdly, UK investors have probably realised that the number of opportunities available for attracting new funds into UK markets is now very limited. Once auto-enrolment of almost every employee in the UK into a pension fund had taken place the opportunity for the share Ponzi scheme to expand further was effectively closed unless, like a tax increase, it is demanded that employees make increased contributions into such funds with absolutely no guaranteed return on the income foregone by doing so. The political likelihood of such an increase in contribution rate being agreed to in the current economic environment is low, meaning that there is now a growing awareness in the UK market that share prices must be hovering at around their peak.
Fourthly, UK investors have not bought the hype about AI, which is what has fuelled US markets. Most UK share investors, or potential investors, are older and remember what happened after the dot.com boom. There was a bust. They are not willing to go there again. The similarities in market movements in the USA are striking at present, with the probability that the outcome will also be similar being high.
Fifthly, people in the UK are not persuaded by the argument that people need more ‘stuff', which is what most stock exchange companies supply. By definition, those who are saving the most have sufficient 'stuff' to meet their needs. They appreciate that much of the attempt to sell more ‘stuff' is not going to be beneficial for companies, for the planet, or investors, and therefore realise that growth potentials are low.
On the other hand, sixthly, people in the UK realise that what we do need is investment in infrastructure, in housing, in health, in education, and public services in general, but because the government makes it quite hard for them to actually dedicate their savings to such things because of it aversion to borrowing and its narratives around this issue, they are forced instead to hold savings in things like cash and property, which are not delivering for the economy as a whole.
Last, and seventh, there may be quite rational risk aversion in the UK economy. When UK investors quite reasonably anticipate low growth, can see rising debt levels, high rates of debt default, the impact of the crushing burden of excess interest rates (which in themselves also encourage people to save in cash) and the very limited likelihood that our government will do anything to change these outcomes, coupled with a reasonable concern about international investing created by the toxic environment that Trump is promoting, then why not go for the safe option?
Media like the Financial Times see their interests as best aligned with those of the toxic Ponzi stock exchange, but rational people do not. I take the lack of willingness on the part of UK savers to put their money into stock markets as a sign of hope. People are looking for something useful to do with their money and are realising that the stock market is not providing them with any such opportunity. What we need are alternatives and a lot less whining from those who cannot sell their shares.
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Or maybe we are individually on average more broke than other countries. I had a Nutmeg account for about three years paying £100pm. It made about 4% profit. When my wife was made redundant, the £100pm and pot had to go to important essentials like heating and eating. Now she is re-employed but on a minimum wage, any savings now go to her personal pension, which I see as better long term value.
For far too long, the decisions of company boards have been almost entirely driven by the need to satisfy the greedy demands of their investors for short-term returns and/or profitable exit routes. Is it too optimistic to see private investors’ abandonment of stocks and shares as the dawning realisation that the emperor has no clothes?
And that investment funds are not serving them
Thames Water being an example – and do not forget the excessive ‘compensation’ (salary to you and I) that top executives demand. A ‘golden thank you’ is handed out for poor performance, even if sacked due to that. and then the share options et al. Unfortunately many, if not most, pension funds are based on stock market investments and many people cling on to shares gained through privatisation believing that the market will only go up.
AI developments appear to be dominated by major corporate interests (who are also cornering the politics, and have already monopolised the money; since neoliberal Governments seem intent on trying to privatise even money itself; which can only end badly). This is a ‘cost of entry’ issue. Competitive capitilism is being squeezed out by monopolists and cartels.
The exception is competition where the modern neoliberal game is not being played by international competitors. We can see the effects starting already. “Tesla’s global vehicle sales rose 2.3 percent in the final quarter thanks to 0 percent financing, free charging and low-priced leases. But that was not enough for billionaire Musk’s most valuable holding to overcome a sluggish start to 2024. The Austin, Texas, company sold 495,570 vehicles from October through December, boosting deliveries to 1.79 million for the full year. That was 1.1 percent below 2023 sales of 1.81 million as overall demand for electric vehicles in the U.S. and elsewhere slowed. …… The year-over-year global sales drop is Tesla’s first since 2011, according to figures from analytics firm Global Data.” (PBS News 2nd January, 2025).
What is happening? Among other factors,I suspect the most significant is this: “Tesla remains the runaway leader in EV sales. But its drop is obscuring growth in the rest of the market. Excluding Tesla, EV registrations grew by 11% in October, S&P says. Factoring Tesla in more than cuts that growth in half” (Kelley blue Book, 13th December, 2024).
And here is what I speculate is the bigger picture: “With full-year global sales of 1.79 million cars, Tesla was still narrowly ahead of BYD, whose EV sales grew 12.1% to 1.76 million globally. The U.S. EV giant downsized its global workforce last year in the face of tepid demand and stiffer competition from Chinese EV makers, and cut the size of its China sales team. As an EV price war in China enters a third year, Tesla has extended a 10,000 yuan ($1,369.99) discount on outstanding loans for its best-selling Model Y as well as zero-interest financing of up to five years for some Model 3 and Model Y cars until the end of this month. BYD, which has led a cost-cutting competition with its Dynasty and Ocean series of EVs and plug-in hybrids, overshot its sales target, with passenger vehicle sales up 41% to over 4.25 million units last year.
The Chinese EV champion’s overseas shipments rose 71.9% to 417,204 units, or 9.8% of its global sales, missing its export target of 450,000 for 2024, as it faces a 17% additional tariff, the lowest the EU has assigned Chinese EVs from China” (Reuters, 3rd January, 2025).
And this: “BYD Auto, China’s electric vehicle (EV) king, was the world’s biggest seller of pure electric cars in the fourth quarter of 2024, as Tesla’s sales for the period fell short of expectations.
Shenzhen-based BYD beat Austin, Texas-based Tesla by more than 20 per cent in terms of deliveries. In the fourth quarter, BYD delivered 595,412 battery electric vehicles (BEVs) to customers, up 13.1 per cent from a year earlier. The company, which counts Warren Buffett’s Berkshire Hathaway as a shareholder, also sold 918,556 plug-in hybrid cars (PHEVs) in the fourth quarter, up 120.7 per cent from a year earlier” (south China morning Post, 3rd January, 2025).
And here is what the industry observers think all this means: “We believe BYD and other leading Chinese [manufacturers] are set to conquer the world market with high-tech, low-cost EVs for the masses, hereby accelerating global EV adoption,” investment bank UBS said in a report” (Forbes, 4th January, 2025).
Neoliberalism is being beaten, because the world doesn’t play by its rules; except by neoliberal countries that have just given up altogether; like Britain. And we know what Musk thinks of Britain. I wonder if he thinks tariffs will fix the problem for him? It may, but tariffs do not advance technology, they protect sunk investment and vested equity interest; and that isn’t neoliberalism in the theory it espouses.
I have always seen the stock market as a mechanism for daylight robbery and self-aggrandizement, hence some people’s enthusiasm for it.
For me, it has always been a bad idea – it would be nice to see the penny drop. We need something more long term that promotes longer relationships.
Richard, completely agree with the statement that the stock market is just a Ponzi scheme, manipulated by the billionaires and aided by governments.
Only problem for Britain, although maybe not enthusiastic about the stock market, we are obsessed with the housing market Ponzi scheme. And we will have the same problem as the Americans when the stock market/housing market crash – which do tend to crash together (2008, 1990 etc)
Given that you can currently get inflation beating rates of return on cash deposits why on earth risk money in shares?
Surely many people’s pensions are invested in equities and that’s also a choice – I can choose which type of investment is in my private pension but I let the fund managers/advisor do it according to appetite for risk and I think currently about 70% is in various global stock markets. The pension value has indeed gone up (especially in the US) by about 15% overall last year.
I have never been interested in investing and only started a private pension because I had nothing else, being self-employed. I’d gladly look at shifting some or all of the pension into socially worthy causes but as you say there doesn’t seem to be a choice for that.
Questions I want answers to before considering whether I invest in a company, either by buying something from them, or investing in them (new shares/bond only, not used ones).
1. What is your product or service?
2. What is your pay ratio (between lowest & highest paid employees)?
3. What is proportion of directly employed to self-employed &/or contractors?
4. How much corporation tax have you paid over the last 5 yrs?
5. How much have you spent on share buyback over last 5 yrs?
6. How much bonus/dividend have you paid to investors over last 5 yrs?
7. How much have you invested in infrastructure over the last 5 yrs?
8. How much debt is the company servicing?
and finally,
9. Why are you in business in the first place?
Good questions
How do we find a way for new businesses to get investment and grow? How do we nurture companies so that they do go on to generate things that we need and offer good employment opportunities?
I am thinking about that.
Might it be more relevant and helpful to our society if the figures on food bank use and homelessness were broadcast/published with the same frequency and prominence as the current stock market reports?
Yes
Just listened to the (repeat of the) Food Programme on BBC Radio 4. Worth listening to, for different perspectives and models of operations; but the same, shameful, message of food poverty and multiple related poverties. Gordon Brown (whatever his failings as Chancellor and PM) talked a lot of sense, at least as regards the problem and how wrong it is in our so-called civilised country. But indeed, why is this only ‘occasional’ news (when Trussell Trust or whoever makes a report or press release)?
https://www.bbc.co.uk/sounds/play/m002694z
DWP don’t accept foodbank data as reliable (I collected, collated and submitted it for 5 yrs while running a foodbank).
They don’t collect their own, in fact they actively avoid collecting/recording DWP referrals to foodbank.
DWP have always rejected any generalised notion of chronic food poverty.
Trussell/IFAN publish there national figures.
https://www.trussell.org.uk/news-and-research/latest-stats/end-of-year-stats
https://www.foodaidnetwork.org.uk/data
Its a huge database.
Thanks
I think that same article shows that the average Briton has more money in pensions than those of at least some of the comparator countries – and a lot of that money will also be invested in shares bought on the stock exchange. The differences would look less dramatic if that was included, though it is certainly the case that North Americans are more keen on holding shares.
I also worry that the article shows the average investment (or total across the population which amounts to the same thing) when it would be more informative to know what the median investment is by a national of those countries. It is very possible that the figures are skewed by the large sums owned by a small minority of very wealthy people, in all countries.
Finally, a comment I am less sure about as a relatively recent observer of economics (and largely from this blog, and this is something not normally in Richard’s area of commentary). It seems to me that even though a very small proportion of the share purchases on the stock market relate to new issues by companies for investment, the fact that they have a share-based structure is critical for their existence and ability to borrow from other sources (e.g. corporate bonds) for investment. I don’t think that structure would work without there being a constant market in the shares, which means the buying and selling of second-hand shares does have some importance.
(I would be happy for those more expert than me to put me right if my tentative understanding of shares and stock markets is faulty; this blog has proved an excellent learning resource in the past).
I agree that there needs to be a secondary market for existing shares, otherwise how can initial investors exit from their involvement? (They’re the ones willing to share in the risks of a start-up that made an initial offering, possibly only to a limited group of investors; but they may want to exit and realise their capital, to invest in some new venture or in something much less risky or illiquid: their liquidity preferences may have changed, their circumstances may have changed…)
What makes it a casino/Ponzi scheme is the idea of (some of) the secondary market purchasers, that they can buy when the shares are cheap and sell when they are up, on a purely speculative basis, working with the sentiments of the market; and worse, that they could short sell and profit from falls in share prices. Then, they are speculators, not simply replacements for the original investors who take over the entitlement to a part of the profits generated by the real activity of the company.
I am not saying there should not be a secondary market. It need not be the one we have. And it does not need the supposed liquidity (which disappears in a crash) of the one we have.
Thatcher’s Big Bang has a lot to answer for.
“seventh, there may be quite rational risk version” — it should be ‘risk aversion’. Being risk averse is quite rational in circumstaces like the one your are characterising.
Corrected, thanks. A dictation error.
The only question I might have is if we dont have shares how do we sort out the ownership of companies?
We could have shares.
It’s the massively over-promoted market in them that is the problem.
They can have a role in long term investment in socially useful companies, but the Ponzi scheme is not required.
No, “not past their sell by date” – stock markets still have a place in our economic and financial landscape. But we need to realise what they are and what they are not.
They ARE merely a venue for people to buy and sell equity in large companies. Whilst a lot of activity is speculative there are legitimate transactions going through (and there is a need for some speculation to deliver liquidity to real end users).
It is NOT (to a large degree) a place to raise fresh equity – Private Equity/Venture Capital and old fashioned friends and family is where this happens.
It is NOT a symbol of national economic success or otherwise.
It is NOT a solution for directing investment into the things we need.
It is NOT a “nice little earner” for the UK; on the contrary, it is a cost (albeit necessary) to investors.
Expecting a reform of the stock market to improve our economy is wrong… but as someone who owns a portfolio of shares that delivers me dividend income in old age, I need a place where I can gradually sell as I get older and need to eat into that capital.
Clive
We need secondary markets, I agree. But we need secondary markets that encourage long term holding and maybe sieculation hard.
So, we need regulation to prevent speculation, and we need incentives for long term holding.
I think that is achievable.
The first is a heavy transaction tax for speculation on short term transactions. The second is reduced rates of tax for long term holdings, maybe, or maybe a time condition for CGT treatment.
There are other options. My point is, markets need not be as they are.
Richard
I think the ultimate aim we are both hoping for is productive investment in the things we need. My point is that the structure/rules of the Stock Market are largely irrelevant and we should focus our attention on other things.
We should be looking at how we allow good companies to be created and maintained. How can we encourage investors to put their money somewhere useful.
This is done by tax policy and direct government involvement – not tinkering with Stock Market structure.
Agreed. You will note my suggestions ignored them.
“[The Stock Market] is NOT (to a large degree) a place to raise fresh equity – Private Equity/Venture Capital and old fashioned friends and family is where this happens”.
I have no argument with any of that; save to say private equity/venture capital does not seem a very effective source of investment for small innovative start-ups in the UK (although I acknowledge I am very out of date, but nothing about VC ever impressed me); and private equity will find most start-ups too small to consider (but pick them off later after someone else took the early risk). In the US it is a different world.
All your assumptions are right, John.
The stock market will not help most people. A report published by the Joseph Rowntree Foundation says that:
“A single person needs to earn £28,000 a year to reach a minimum acceptable standard of living in 2024”
https://www.jrf.org.uk/a-minimum-income-standard-for-the-united-kingdom-in-2024
The minimum wage and pensions do not reach half of that.
The minimum wage will be £25,000 for some next year.
Perhaps part of the answer could be a group of local investors, investing in something they know about, and knowing and trusting each other. They could invest in a business making something, or in refitting houses, or some form of care. It needs to have a clear ending, so shares don’t have to be sold, I think. Local farm schemes exist, especially in the US, where a group pays a farmer a fixed amount to be provided with produce throughout the year. It seems that these are so successful that they have a waiting list to join them, so the problem of hpw to close isn’t relevant.
Anecdote: in the early 1900’s. my grandfather was part of a clock-buying syndicate, of about 15 men who knew each other. Each put a fraction (clock price/number in group) into a fund every month, and every month one of them, chosen by lot, got a clock. Those with clocks had to continue paying until everyone had a clock — hence the need for trust. I have my grandfather’s wall clock with pendulum.
Could it also be a factor that people in the UK on average have less disposable wealth and time available to invest? Once their “basics” of house and pension are taken care of, perhaps there’s just not enough left over, and more immediate things to worry about, to spend time and effort investing in the stock market.
This is true of most countries. Wealth is very concentrated in the USA, for example.