Recession: The AIM by-product…

Thursday, 5th March 2009 14:00 - by GedW

There is no doubt that the recession will sort the wheat from the chaff when it comes to stockmarket listed companies. It will also weed out those listed companies that should never have been listed in the first place, those that came to the market on the flimsiest of business models. In particular, the junior Alternative Investment Market (AIM) will see the rudest of awakenings. With its 1,500 or so constituent companies, it is reckoned that up to 300 will leave AIM within the next 18 months, either through a de-listing or a move up to the main market. But what is for sure is that many will flounder through lack of funding, turnover, poor management, investor apathy and a cynical City that will continue to turn its back on what it traditionally sees the AIM market as - ‘flaky’ at best, but quite happy to ‘clock’ the listing and continuing regulatory fees. What will be left in the recession wake will be a leaner, meaner bunch of AIM constituents awaiting those brave souls prepared to put risk aversion to one side and weed out the stocks that will achieve great success. What will be left of AIM after the carnage of the recession? My guess is a market ready to move forward and reward loyal, patient investors. Investors will then be able to pick and choose those AIM companies showing promise. However, all the stock-picking skills and rules will still be relevant. The perennial problem facing AIM is the lack of funding, both from the lenders angle and the Venture Capitalists. Both will find funding difficult to source, but will improve as economic confidence returns and a new breed of investor moves in along with a tighter regulatory regime. One other issue which requires corrective action is the power ‘Market Makers’ wield over illiquid AIM stocks, but we are seeing more and more AIM stocks being traded under the order driven SETS system, moving away from the quote driven SEAQ system. I believe this should resolve the concerns many AIM investors have in getting a reasonable spread on the shares they own. My firm belief is that there are some cracking AIM companies that will weather the economic downturn and come through the mill, bringing prosperity to patient investors.