Leading City figures have sounded the alarm over the health of London’s AIM market after a new analysis revealed the number of companies quoted on London’s junior market to be at a 20-year low.
In another sign of the malaise afflicting the UK’s capital markets, accountancy group UHY Hacker Young found that roughly 80 firms have left the AIM exchange in the last year.
The exodus means that just 722 PLCs remain on the bourse; the fewest since 2002, and less than half the number that existed during the market’s heyday in 2007 when 1,694 companies were listed on the growth-stage market.
The gravity of the delistings has been amplified by the barren IPO environment. Since the start of the year, just eight companies have chosen to list on AIM, fearing burdensome administrative costs and a paucity of capital.
“Institutional investor demand for small caps has been in decline for some time, partly because of liquidity concerns… and the pandemic and high rate environment left small caps out in the cold,” Dan Coatsworth, an investment analyst at AJ Bell, told City A.M.
“The knock-on effect [is that] AIM companies are questioning the cost of remaining a listed business – why bother to pay listing fees if investor interest is minimal?”
Meanwhile, Nicholas Hyett, an investment manager at Wealth Club, blamed interest rates and an uncertain policy environment for the market’s decline that was recently embodied by the decision by Nightcap – a group of 46 bars run by former ‘Dragon’ Sarah Willingham – to de-list last month.
He said: “High interest rates make small, fast-growing businesses less attractive, and that has seen a slowdown in venture capital funding around the world.
“A more AIM-specific problem has been uncertainty around UK inheritance tax (IHT)… it’s been suggested that the government would like to scrap the IHT relieve available on AIM shares, which would be bad news for AIM since IHT relieve attracts lots of investors to the UK’s junior market.”
Pension funds’ recalcitrance to invest in British stocks was also pointed to as a key reason for the market’s dour performance. Judith MacKenzie, chair of the Quoted Companies Alliance (QCA) – an industry body that represents publicly listed firms – told City A.M. that the under fire industry was investing in the UK equities at “the lowest levels in history”. She added: “UK M&A activity is strong. Other investors find UK companies good value – so should domestic investors!”
Charles Hall, head of research at Peel Hunt, identified reform to pensions – as one of the most important elements for any change in fortunes for the bourse, which was founded by the London in 1995 to lure smaller, fast-growing to list with the promise of less stringent regulation.
“Key to reversing this trend is incentives to encourage investment in UK companies, such as pension reform, a UK ISA, and a national wealth fund for equities,” he said.
The QCA believes abolishing stamp duty and changes to listing rules will also aid the market’s recovery.