UK small caps crisis to continue say institutional investors - survey

11 November 2011 – 

UK small caps crisis to continue say institutional investors - survey

The stock market is failing dynamic British companies which are being starved of the capital they need to grow, according to a study by leading business and financial adviser Grant Thornton.

The survey of 50 UK fund managers and institutional investors with a total of more than £40 billion under management finds that London remains an attractive place to invest but recognises that there is a growing crisis involving smaller quoted companies.

More than two thirds (68%) of respondents disagreed that compared to other exchanges London is a less attractive place to invest than 6 months ago (12% agreed and 20% neither agreed nor disagreed).

But the number of companies quoted on AIM has dropped by nearly a third since its peak of 1694 in 2007 to just 1156 companies at the time of writing.

"Stakeholders must act decisively to stave off a crisis on the London Stock Exchange. There is a danger that we are reaching a point at which London's financial ecosystem collapses, preventing institutional investors from investing in UK equities," commented Philip Secrett, Head of AIM & Smaller Listed at Grant Thornton UK LLP.

"Structural changes in the market driven by regulation and technology have undermined the ability of stockbrokers to broker stocks, market makers to make markets and analysts to issue research. For small caps this has resulted in a drop of coverage and trading volumes. With share prices weakening and liquidity drying up, a growing number of small caps have decided to delist, while others were left with few options but to yield to take-over activity. Meanwhile, the number of small caps launching an initial public offering dwindled."

"Our respondents indicate that the amount of money dedicated to UK equities is already shrinking. Meanwhile, other studies have shown that pension funds have dramatically dropped their allocation to equities in recent years, further diminishing the sources of funding for UK small caps."

"There is not enough information to guide investors through the prospects of small caps because brokers have lost incentives to produce quality research with the loss of trading commissions. We need to find ways of replacing the previous model which was broken with the emergence of electronic trading."

Respondents expected average share prices on AIM to rise by 3% in the next 12 months, which would lift the index to 765 by September 2012. They also predicted a 3% rise for the FTSE 250 to 10449 by September 2012. Yet only 24% of respondents agreed that now is a good time to switch into AIM and Smaller Listed companies, compared to 36% who disagree and 40% who neither agreed nor disagreed.


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Notes to editors:

Grant Thornton UK LLP is a leading business and financial adviser with offices in 27 locations nationwide. Managed by more than 200 partners and employing nearly 4,000 staff, we are a member firm within Grant Thornton International Ltd, one of the world's leading international organisations of independently owned and managed accounting and consulting firms. Clients of member and correspondent firms can access the knowledge and experience of 2,600 partners and 30,000 employees in over 100 countries and consistently receive a distinctive, high quality and personalised service wherever they choose to do business.

Copyright © 2011 Grant Thornton UK LLP. All rights reserved.

This press release has been prepared only as a topical guide to business matters. No responsibility for loss occasioned by any person acting, or refraining from acting, as a result of this press release can be accepted by us/Grant Thornton UK LLP. Professional advice should be sought before making any investments.

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