He said London should instead maintain its reputation as the “cleanest” stock market in the world.
Mr Block told The Telegraph: “The US provides the highest valuations for listed companies but in many ways the US leads the race to the bottom in terms of the corporate governance practices.
“The moral choice for the UK is to say, fine, we will remain somewhat of a niche market and non-tech oriented market, but we will have among the cleanest major liquid markets in the world.
“That’s somewhat antithetical to attracting listings but maybe that tells you everything you need to know about a company that would eschew a market that demands accountability and transparency.”
Fears are growing about the fading relevance of the London Stock Exchange after a plunge in new listings, a rise in companies quitting the market and the likes of Arm snubbing London in favour of New York.
Last week travel agent Tui became the latest company to push ahead with plans to leave London, urging investors to back its plans to list solely in Frankfurt.
Prime Minister Rishi Sunak and Chancellor Jeremy Hunt have made reviving the London market a key priority, with the City watchdog recently announcing rule changes meant to attract companies by emulating New York.
However, Mr Block has few good words to say about the US stock market.
He said: “At some point, post-financial crisis, investors stopped viewing themselves as being remunerated for avoiding risk and it really became about buying narratives. Especially, you know, really exciting narratives.”
This seeded what he dubs the “lie to me” culture, whereby company chiefs seek to fake it till they make it. A string of corporate scandals involving founders promising more than their companies could deliver - from Theranos’ blood testing devices to Nikola’s electric trucks - back up his point.
“Part and parcel of being the centre of the galaxy in tech investing [in the US] is really buying into what I call this ‘lie to me’ culture.
“The lie to me culture is not as deeply ingrained among UK equity investors.”
Mr Sunak and Mr Hunt have made boosting the stock market a key plank of their strategy for reviving Britain’s moribund growth.
However, Mr Block said a vibrant stock market would do little to help the real economy.
He said: “When you have equity bubbles it redistributes to people who are basically lucky, as opposed to good. It takes from the many and distributes to the few, but those few aren’t generally the more capable people.”
Mention the name Carson Block to US business leaders and a look of horror will flash across their face.
The 46-year-old New Yorker has built a feared reputation for laying siege to boardrooms around the world.
His fund claims “do the work Wall Street won’t” by unearthing balance sheet shenanigans and other corporate chicanery.
“A typical thesis for us is one in which we expose wrongdoing by a small coterie of individuals,” Block said.
At businesses where ugly secrets are uncovered, Muddy Waters shorts the shares – borrowing them and selling them, hoping to make a profit from a slump in the stock price.
Muddy Waters made its name investigating Chinese businesses that listed on North American stock markets in the early 2010s. Its quarry is usually overseas businesses or smaller companies.
Its fire and brimstone approach makes Block’s latest short-selling target all the more compelling.
A blue chip business like this is not one where Muddy Waters usually finds much ammunition. Unlike past targets, however, Block doesn’t allege any wrongdoing or misdirection.
“We haven’t accused anybody of wrongdoing because we don’t see wrongdoing,” Block said. “They’re just basically caught in what we think is a perfect storm. They’re in the wrong place at the wrong time.”
Blackstone Mortgage Investment Trust, known as BXMT, is a $22bn (£17.3bn) book of IOUs. Landlords have been lent money by the trust to buy commercial property.
Muddy Waters believes BXMT is horribly exposed to higher rates and claims landlords will struggle to pay the fund back.
Post-Covid, more people are working from home and this has prompted tenants to cut the amount of space rented from landlords.
At the same time, landlords are also having to refinance loans they took out to buy the offices in the first place at much higher rates.
$117bn worth of office loans must be repaid or refinanced this year, according to the US Mortgage Bankers’ Association, with rates significantly higher than when the loans were first taken out.
BXMT could face loan losses of up to $4.5bn with shares at risk of total wipeout, Block has claimed.
Block sees some overlap with the debt-fuelled days of the financial crisis. He likes to quote former Citigroup chief Chuck Prince’s quip that “as long as the music is playing, you’ve got to get up and dance” to describe the wall of money lenders chucked at commercial property in recent years.
Block said: “With 20/20 hindsight, it turns out to be imprudent.”
Although most of BXMT’s funds are US focused, the same trend appears to be at play in the UK.
Block said: “It’s fair to extrapolate that office demand in the UK is structurally lower than it was prior to the pandemic.
“Rates are obviously higher as well, which negatively impacts the collateral values. You’re left with a situation in which properties are producing lower yields, but the market requires higher yields.”
Shares in BXMT slumped on the day he revealed his short position at an event in London.
BXMT disputes Muddy Waters’ claims, saying more than $8bn of loans were repaid or rolled over last year, with the fund receiving $3.8bn of repayments.
BXMT has published figures downplaying its exposure to offices, claiming only 36pc of its loan book back offices.
A spokesman said: “The facts are that with the vast majority of the portfolio performing… BXMT continues to show resilience amidst a challenging backdrop.”
Born in New York, Block cut his teeth working with his stock analyst father before going to law school and then moving to China, where he started researching overhyped stocks.
He made his name with a critical report on Sino-Forest, an $8bn Chinese forestry company that was later declared a fraud by Chinese authorities.
Block followed up with a series of other direct hits, giving him something of a rock star reputation in financial circles. A remark he once made on TV about shorting an unnamed Hong Kong company prompted the entire Hang Seng Index to drop.
His crusades have led to some hair-raising war stories. He once claimed a corporate spy posed as a Wall Street Journal reporter to meet him and solicit information. Block knew, filmed the whole episode and released the footage.
Block has targeted UK-listed companies in the past, notably NMC Health, the Middle Eastern hospital operator that collapsed in 2020.
The Government will soon scrap EU rules around short-selling disclosures, meaning funds like Muddy Waters will be able to stay hidden for longer.
Block said: “The UK becomes a lot more attractive, you know, for short selling.”
Even if the London rules are relaxed, crusaders like Block will be keeping companies honest.
