AIM liquidity plummets in wake of Eurozone crisis

  • Companies urged to step up focus on investor communication
  • Government should look at extending VCT tax relief to more AIM companies

Liquidity on AIM has plummeted following the Eurozone crisis, our new figures show.

The average daily value traded per company on AIM fell by 30% between Q1 and Q3 of last year, down from £170,000 during the first quarter of the year to £118,848 during the third quarter.

The fall in value traded was twice as marked as the fall in the AIM index, with the average level of the FTSEAIM All-Share declining 15% over the period, from an average of 940 in Q1 2011, to an average of 796 in Q3.  The index has subsequently fallen further.

Our research points out that it had been hoped that the clear-out of smaller, less liquid and otherwise struggling AIM companies that peaked in the first quarter of 2009 would leave the market as a whole more attractive to potential investors.

Laurence Sacker, partner at our London office, said:  “You’d expect to see some dip in enthusiasm for investing in small cap companies in the wake of a major economic crisis as investors retreat to core assets, but liquidity on AIM does seem to have suffered quite badly.”

“Unfortunately the market does not seem to have had enough time to benefit from the consolidation created by the shake-out in early 2009.”

There are few, if any, tracker funds following AIM, companies on the market do not benefit from the sorts of passive investment strategies that are increasingly popular with both institutional and retail investors as a means of reducing costs.  This makes a proactive investor relations programme crucial.

Laurence comments: “Far from being a luxury for AIM companies, investor relations must start to be seen as a priority.  Being in the press, engaging with existing investors, and giving regular updates to the market are all vital to attracting liquidity.  It will help to compensate for the lack of research coverage on AIM, and make the cost of staying on the market worthwhile.”

Average daily value traded per AIM company

 

Further VCT changes could maximise liquidity

UHY Hacker Young point out that while the Government is amending Venture Capital Trust (VCT) qualifying criteria to make the scheme’s tax benefits available to investors in slightly larger AIM companies, VCT relief will still only be available on new issues, and not on shares bought in secondary market trading on AIM.

AIM companies are also excluded from a raft of recent Government initiatives to boost financing for growing businesses, such as the Seed Enterprise Investment Scheme and Business Growth fund, which are targeted at earlier stage businesses.

Laurence Sacker adds: “The London Stock Exchange has been lobbying for changes to the VCT regime for some time, and the recent changes are a big step forward.”

“But allowing VCTs to acquire shares in secondary market trading could also bring huge benefits, as by driving liquidity it could help attract a range of other investors into the market.”

“If not, the risk is that smaller quoted companies will become the ‘squeezed middle’ of the corporate world – too big and established for the kinds of incentives offered to investors in start-ups, but too small to benefit from analyst coverage or investment by tracker funds.”

“Offering VCT relief for all AIM companies, not just new issues, would help bridge this gap.”