Should investors avoid the curse of celebrity stock markets?

A wave of IPOs from celebrities and leading companies is about to hit Wall Street, fueling debate about leaving the city out in the cold.

Among the stars heading for a listing in the US is influencer and reality TV star Kim Kardashian. Her clothing brand Skims is about to go public and is expected to reach a value of $4bn (£3.2bn).

There is hope that the founder’s star power and sizable social media following will encourage more companies to pursue and launch IPOs in New York.

The frothy mood in the US contrasts with the gloom in the Square Mile. According to investment bank Panmure Gordon, the British stock market is trading at its biggest discount ever. This means that the value of the shares, as measured by the profits generated by the companies, is historically low.

The low valuations British companies can expect to see if they list in London compared to New York fuel fears that more will avoid the City in favor of Wall Street.

Other companies lined up for a market debut in America include Birkenstock. The fashion-forward sandal company saw sales soar after actress Margot Robbie wore a pair in the hit summer movie Barbie.

The canned water company Liquid Death, popular with style-conscious younger consumers and described by the Washington Post as “the Emperor’s new water,” is also planning a float in the US.

The same goes for Reddit, a network of online communities. During the pandemic, Reddit users increased the price of a number of US stocks, including GameStop, a computer game retailer. Those who bought at the top were left with huge losses. Some fear the same could happen with the next batch of IPOs in the tech-heavy US Nasdaq market.

Executives at Nasdaq — which has raised £4.3 billion in funding so far this year through the listing of 83 companies — are rubbing their hands at the prospect of snazzy, celebrity-endorsed floats.

The London stock market, on the other hand, has raised £940 million from 20 floats so far in 2023.

Calls have grown for the Square Mile to do more to attract public companies following a series of high-profile corporate defections to the US, including building materials supplier CRH, which owns Tarmac.

However, some observers argue that the UK’s strict regulation is helping British investors dodge bullets about to blow holes in their US counterparts’ portfolios.

“London’s regulations protect investors and ensure companies meet high governance standards,” said Russ Mould, director of investment at stockbroker AJ Bell.

He added that most of the US listings have been “top-of-the-market duds” and British investors have “turned away losses”.

Mold also warned investors against buying companies backed by celebrities and popular brands. “Hype is the investor’s enemy,” he said. Investors tempted by the idea of ​​celebrity stocks should consider the records of famous faces like David Beckham.

The former soccer player has supported several smaller companies, including e-sports group Guild and Cellular Goods, a maker of skincare and wellness products infused with chemicals from cannabis plants.

Both proved to be huge flops, with shares in Guild currently changing hands at 92 percent below their listing price, while Cellular’s stock has plunged 84 percent.

Californian rapper Snoop Dogg backed cannabis research firm Oxford Cannabinoid Technologies in 2021, whose London-listed shares are currently 74 percent below their listing price.

“It seems like every celebrity is trying to jump on the bandwagon right now,” said Michael Field, a market strategist at Morningstar, a financial research firm. He added that many of these companies “will be fads” designed to provide founders and others with “a quick way to cash out.”

There are also ethical concerns surrounding some who want to float in New York. Chinese fashion giant Shein, whose cheap clothes are heavily touted online, is in talks with banks about a possible US listing and was recently valued at more than £47 billion ($60 billion). But it has been embroiled in a major controversy over its use of sweatshops, having previously been accused of trying to whitewash its labor practices using online influencers.

Experts point out that the attraction of flotations in itself is not a cause for celebration, but depends on its quality. In June, Turkish chemical giant We Soda, a maker of soda ash used in glassmaking, detergents and soaps, canceled its planned IPO in London, complaining that the market had valued it at “unrealistically low” levels.

It later emerged that potential financiers had been put off by several warning signs, including We Soda’s demands for a high valuation and the fact that chairman Didem Ciner is the 43-year-old wife of the company’s current owner, Turkish billionaire Turgay Ciner, 67.

Asset manager Justin Urquhart-Stewart said regulators should not allow the London market to be dominated by “unreliable” quotes. He added that aspiring companies to be on the list must have “solid and well-structured businesses” and not be guided by “fads.”