AIM had a rough ride during 2009, suffering from a wave of de-listings and a significant fall in new money raised. To the end of October 2010, however, the number of companies de-listing from AIM had fallen by 28 per cent, compared with the same period last year, while new money raised is up from £579.7m to £863.18m. But how has AIM’s recovery impacted other markets and how well is London’s junior market serving small cap companies and their investors?
Not surprisingly, given the drop in the number of de-listings, secondary markets have seen fewer companies join from AIM, with private firms now making up the majority of new admissions. As for the main market, a new government, spending reviews and bank bail-outs have all contributed to a turbulent year. Amid the ups and downs, the steady recovery of AIM has been welcomed, with seven companies moving up to the main market from AIM so far this year.
Liquidity remains a real concern
However, the story isn’t so rosy for the majority of UK-listed small cap companies, for whom liquidity and market visibility remain a real concern. With market-makers widening spreads in the wake of the credit crunch and mainstream media attention focused on larger companies, 2010 has seen many small caps struggle to communicate with their investors and improve market exposure, while their shares remain inaccessible and illiquid.
Furthermore, institutional investors are unable to invest in small caps due to size and liquidity restrictions, while the regulatory and information environment makes it difficult for private investors to invest.
One organisation committed to helping small caps escape the liquidity trap is the Small Cap Network, a newly-formed industry working group. Small Cap Network member and co-founder of Stockopedia, David Brickell, says: “Although small caps have outperformed large caps, this wasn’t the case in recent years and, as a result, a lot of institutional money has been lost from the sector.
“This has left retail investors to provide the balance of liquidity but the market structure isn’t well set up for this. Retail investors often lack access to fundamental analysis and broker research, which has unfortunately led to the rise of speculation and short-term trading strategies”.
A state of overprotection
The attitude of policy makers has arguably compounded the problem. Amid understandable concerns about miss-selling, it seems to have been forgotten that the equity markets…
