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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The writer is chief executive of European exchange operator Six Group
For the past two decades or more, the logic for ambitious technology companies considering an initial public offering appeared quite straightforward.
If scale, liquidity and visibility were the goal, then the US often seemed to be the most suitable destination. It boasts deep capital pools, experienced analyst coverage and commands global investor attention. But as global investors now question their US exposure more, the assumption that the country should be the default listings destination deserves a much closer look.
Take liquidity for starters. Recent Cboe data shows average daily notional value traded in US equities reached roughly $1tn last year, reflecting record activity. By comparison, full-year European equity trading averages around €70bn across exchanges according to Rosenblatt Securities, highlighting a persistent scale gap between the regions.
But analysis by Six Group of European exchange data indicates that while US markets generate higher trading volumes overall, post-IPO outcomes show this is concentrated among domestic issuers. In the most recent year of fully comparable data, the average daily value of stocks traded in the US reached about €288bn in 2023 compared with roughly €65bn in Europe, in what was a relatively weak year for the continent’s equity markets. Yet in the US, just 79 mega caps — about 3 per cent of listed companies — accounted for more than half of the total turnover.
This means the headline liquidity advantage is more concentrated than sometimes assumed. For mid-sized issuers, the incremental benefit of listing in the country is often smaller than boards expect. For companies in the $1bn to $5bn equity value range, average daily trading turnover in shares is about 0.1 per cent for European-listed companies outside of Switzerland and 0.3 per cent for foreign issuers in the US. For Swiss-listed companies it is 0.2 per cent.
Valuation dynamics are similarly misunderstood. Headline multiples in the US are heavily influenced by a small group of very large technology stocks that dominate index performance. Technology stocks now represent nearly one-third of the US equity market, more than four times the roughly 7 per cent weighting seen in Europe.
Once these outliers are excluded, valuation comparisons narrow but do not disappear. European indices trade at roughly a 30 per cent forward price-earnings discount to the US, and closer to the high 20s when the largest US technology stocks are stripped out. But that gap largely reflects differences in sector mix and growth expectations at the index level rather than a fixed penalty or benefit applied to individual companies based on where they list.
The headline valuation for the index should not be assumed to apply for individual companies. According to a report last year by the New Financial think-tank, 70 per cent of the 130 European companies that had moved to the US over the past decade to April were trading below their listing price, less than a fifth had beaten the S&P 500 index and three-quarters had not beaten the European market since they moved.
Moreover, the US IPO process itself can sometimes damp pricing outcomes. Restrictions on pre-IPO investor engagement can limit early price discovery, increasing uncertainty around demand. Underwriters can respond by applying larger IPO discounts to ensure execution, partially offsetting any theoretical valuation premium. In addition, underwriting fees are typically higher in the US. In Switzerland, for example, they range from 2 to 5 per cent of gross proceeds, while in the US they average 4 to 7 per cent.
The growing importance of passive investment further complicates the picture. Funds tracking equity indices now account for a substantial share of daily market flows. In more concentrated domestic European markets, issuers can reach index inclusion thresholds earlier. Of the roughly 130 European companies tracked by New Financial that have moved to the US, only two have entered the S&P 500 and just four had joined the Nasdaq 100.
As for analyst coverage, large US companies enjoy extensive attention but smaller and mid-sized foreign issuers listed in the US receive coverage that is comparable with those on European bourses. The average number of analysts covering domestic US companies with a market capitalisation of $1bn to $5bn, for example, is 12. But this falls to nine for foreign issuers, the same level for stocks listed in Europe and Switzerland.
And in general, I believe that for issuers with revenues that are primarily European, being listed where analysts and investors are closest to the story can support more consistent valuation outcomes. None of this diminishes the role of US capital markets. They remain deep, sophisticated and, for certain companies, strategically appropriate. It is just the presumption that a US listing represents the ideal choice for non-US tech issuers should be questioned more.
