Capital markets are, in simple terms, the places where companies and governments raise money from investors. The two main parts are equity, where a company raises money by selling shares, and debt, where it borrows money by issuing bonds. Stock exchanges such as the New York Stock Exchange (NYSE), Nasdaq and the London Stock Exchange (LSE) sit at the centre of this system, connecting businesses that need capital with investors looking for somewhere to put it.
Today, however, the US and UK capital markets are no longer particularly close in size. In 2025, US equity markets represented 43.7% of global equity market capitalisation, compared with only 3.7% for the UK. That difference can look surprising given London's historical importance. Before the First World War, London was arguably the world's leading international financial centre. In 1912, more than two-thirds of the world's largest companies had securities quoted in London, many of them foreign businesses. The First World War dramatically weakened Britain's financial position, while the United States emerged from the conflict with a much stronger creditor position and a rapidly expanding domestic economy. The shift did not happen overnight, but the early twentieth century marked the beginning of Wall Street's rise to global dominance.
The scale of that transformation is striking. In 1900, the UK represented roughly 24% of global stock market capitalisation, while the US represented around 15%. By the decades following the Second World War, the United States had become overwhelmingly dominant. The US exceeded 50% of global stock market capitalisation after the war and reached close to 70% in 1968.
So America's dominance is not a new phenomenon created by the internet or artificial intelligence. It has been developing for more than a century. What has changed more recently is the size of the gap. Since the 2008 financial crisis, the US share of the global investable equity market has risen particularly sharply, reaching more than 60% in some measures by 2025. At the same time, the UK has continued to lose ground.
Part of the explanation is simply the size of the American economy. The US has a population of more than 300 million, a huge domestic consumer market and an economy that has produced some of the world's largest and most successful companies. A business that grows in America has access to a very large home market before it even begins expanding internationally. That creates a natural pipeline of companies that are capable of becoming large public businesses.
But economic size alone does not fully explain the difference. China has a huge economy and population, yet its stock markets are far smaller than America's. Japan has also had periods when its economy and stock market were enormous, but the Japanese market currently represents only a small fraction of global equity value. The US has developed something more important than simply a large economy: an exceptionally deep ecosystem connecting companies, investors, banks, pension funds, asset managers, analysts and stock exchanges.
This creates a powerful network effect. A company wants to list where there are lots of investors. Investors want to operate where there are lots of attractive companies. Analysts follow the markets where there is the most activity, while investment banks and specialist funds build expertise around the sectors that are most important there. More activity then attracts even more companies and investors. The market effectively reinforces itself.
This helps explain one of the most important differences between the US and UK today: the US is particularly good at attracting companies that investors expect to grow very quickly. Nasdaq has become synonymous with technology businesses, and the American market has developed a strong appetite for companies that may have relatively little profit today but potentially enormous earnings in the future.
That appetite has become particularly important during the technology and AI boom. The rise of companies such as Nvidia, Microsoft, Amazon, Alphabet and Meta has dramatically increased the value of the US market, while simultaneously making America even more central to global technology investing. In June 2026, the technology sector alone represented more than 39% of the S&P 500 by market value, an all-time high and above the level seen during the dot-com bubble.
AI has therefore not created America's capital-market dominance, but it may have accelerated it. The most valuable companies associated with the current AI boom are overwhelmingly American, and investors around the world who want exposure to that growth have often had little choice but to buy US shares. That creates another feedback loop: enormous technology companies raise America's market capitalisation, which attracts more global investment, which increases demand for US shares and makes the market even more important.
There is an important distinction here between where a company is actually based and where its shares are traded. A British company does not necessarily need to list in Britain. A company can build its business in the UK and then decide that its shares would receive greater demand, liquidity or a higher valuation in America. That possibility is now becoming increasingly important.
British AI company Quantexa provides a useful current example. In August 2026, its chief executive said that the company could list in the UK, the US or both, but acknowledged that the US offered a deeper pool of capital and the possibility of a higher valuation.
The question this raises is quite uncomfortable for the UK: why would a British entrepreneur deliberately choose to build a company in a smaller capital market if the same business could potentially be worth more simply by accessing the American market?
The answer is not necessarily that every British business should move to America. Britain still has a major financial centre, strong universities, sophisticated investors and internationally important industries. London remains particularly significant in areas such as finance, energy, pharmaceuticals, mining and insurance. But the problem is that many of the companies driving the future of global equity markets are now being built and financed elsewhere.
That matters because valuation can influence a company's future, not just its share price. Suppose two identical technology companies each generate £100 million of annual revenue. One is valued by investors at ten times revenue, while the other receives twenty times revenue. The second company is worth twice as much without necessarily having a better business. That higher valuation can then make it easier to raise capital, hire employees using shares, make acquisitions using its own stock and finance expansion without giving away as much ownership.
The result is potentially self-reinforcing. A high-growth company gets a higher valuation in the US, which gives it more financial firepower. Its growth then makes the company more valuable, attracting more investors and making other entrepreneurs more interested in following the same path. Eventually, the location of the capital market itself becomes an economic advantage.
This may help explain why London's recent IPO difficulties are more serious than simply having a quiet stock market. London raised only £160 million through IPOs in the first half of 2025, its weakest first half in at least three decades. At the same time, companies have increasingly considered US listings because of the scale of American capital and the valuations available there.
The UK has responded by trying to make its market more attractive. Listing rules have been relaxed, the IPO process is being simplified and policymakers are trying to encourage more companies to remain or become publicly listed in Britain. These changes may help, but they do not solve the deeper problem by themselves.
The most difficult issue is arguably not regulation but the supply of investors. British pension funds and households have gradually reduced their exposure to domestic equities. Foreign investors now own almost 60% of the UK stock market, according to recent analysis, meaning Britain has an enormous financial sector but a relatively weak domestic shareholder base.
This is where the comparison with America becomes particularly interesting. The US has built a huge pool of domestic savings that ultimately flows into its financial markets. Pension assets, retirement accounts, mutual funds, ETFs and individual investors all contribute to demand for American shares. The UK's market therefore faces a difficult problem: companies want access to more capital, but the pool of domestic capital available to support them has also become relatively smaller.
There is another side to this, however. It would be too simplistic to conclude that the US simply has better capital markets and Britain should copy them. The extraordinary valuations available in America can also create risks. When investors become heavily concentrated in a small number of companies, prices can become increasingly dependent on expectations of future growth. The recent dominance of AI-related companies demonstrates both the strength and vulnerability of the model. If the expected economic returns from AI materialise, the concentration may look justified. If they disappoint, the effects could spread well beyond individual technology companies because such a large proportion of global investment is now tied to them.
There is also a broader global implication. America is not the only country facing this issue. Europe has struggled to produce public companies on the same scale as the largest American technology businesses, while countries such as Japan and China have much larger domestic markets but different financial systems and investor behaviour. India is developing rapidly, and its capital markets have grown significantly, but it remains much smaller than the US in global market share. The challenge for these countries is similar: how do you create a financial ecosystem capable of keeping the world's fastest-growing companies at home, instead of them choosing to relocate to the US?
This leads to a much bigger question about whether capital markets themselves influence where companies are created. Traditionally, it might have been assumed that entrepreneurs choose a country because of its workers, customers, universities, tax system or quality of life, and then use whatever financial market happens to be available. The US experience suggests the relationship can work in the opposite direction. A powerful capital market can itself become part of the reason companies want to be based there.
This is potentially one of America's greatest economic advantages. It is not simply that the US has a larger stock market; its stock market helps create conditions for larger companies, greater investment and more ambitious business models that would likely fail to raise as significant capital elsewhere.
This does not necessarily mean London is destined to disappear as a major financial centre. Its history shows that financial leadership can change dramatically. London dominated global finance before the First World War, New York subsequently became dominant, and Japan briefly overtook the US in global market capitalisation during the late 1980s before its bubble burst. Financial leadership is therefore not permanent.
The more interesting question is what would cause another shift. At present, the US has an unusually strong combination of economic scale, successful global companies, deep capital markets and investor demand. AI has strengthened that position by producing another generation of enormously valuable American businesses and by encouraging investors worldwide to seek exposure to them.
For the UK, the challenge is therefore much larger than persuading a few companies to float in London. It is about rebuilding the cycle that makes a capital market attractive in the first place: more companies, more investors, more liquidity, better valuations and more investment. Whether Britain can recreate that cycle remains uncertain as it would likely require extensive policy changes and drastic cultural shifts.
The US-UK comparison ultimately shows that capital markets are not just passive places where companies happen to raise money. They can become a source of economic power in their own right. America has spent more than a century building an ecosystem in which capital follows successful companies and successful companies follow capital. The scale of that advantage is now so great that the location of a stock listing can potentially influence the value and future growth of a company itself. That is why the question facing London is not simply how to make its stock exchange more attractive. It is whether it can become attractive enough that the next generation of companies actually sees a reason to stay.