Investors on the Alternative Investment Market (Aim) are suffering a crisis of confidence, says Danny Fortson in The Independent on Sunday. The Aim All-Share index has fallen by 25% since May, as a glut of new listings led many to re-evaluate their position in the market. "The quality isn't there," says one anonymous market source, while Andy Smith, manager of biotech fund SV Life Sciences, is more blunt: "Investors are participating in a bloodbath waiting to happen."
The issue for investors is one of over-supply and under-scrutiny. Some 1,500 companies have listed on the Aim since its inception in 1995. Most recently, US firms, frustrated by stringent compliance requirements in their home market, have fallen over themselves to list in London instead. But with new issues doubling in the last three years, investors are becoming increasingly demanding, says Yvette Essen in The Daily Telegraph.
"Risk tolerance for new firms is falling."
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The proportion of companies from risky sectors, such as mining and biotechnology, is striking, and many have questioned the judgement of those facilitating new issues. The LSE has engaged in extravagant promotional tours to countries as diverse as India, Sweden and Israel, but in doing so it may have shot itself in the foot. "Why the hell should UK small-cap fund managers finance the small-cap sector of the world?" says one fund manager in the FT. Piqued, the LSE has unveiled new regulations to improve standards, but this is just a case of "shutting the stable door after the horse has bolted", says Smith.
Eoin came to Money Week in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.
Eoin acts as managing editor of MoneyWeek's newsletters.
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