Is London’s AIM set to thrive after the Budget?
London’s AIM was dealt a smaller blow than expected in the Budget yesterday, with a half levy applied to its inheritance tax exemption, rather than the full 40 per cent expected by markets.
The reaction was immediately positive from markets, with the FTSE AIM 100 index jumping more than four per cent in the minutes after Chancellor Rachel Reeves finished speaking.
“Should this initial reaction be maintained, it will certainly help to rejuvenate activity on AIM, providing smaller companies with access to funding, and ultimately helping to drive growth across the economy,” said Luke Barnett, head of tax advantage investments at St James’s Place.
However, this burst of investor confidence has somewhat begun to fade, and the junior market is now up just 1.2 per cent over the last week, and is actually down by almost one per cent over the last month.
Nevertheless, the majority of investors in smaller companies were relieved, as the news was “a lot better than feared,” said James Henderson, manager of the Henderson Opportunities trust.
“We still need to see more done to revitalise AIM but the fact that the market actually went up afterwards tells you that the doom had been priced in,” he explained.
As AIM hits its lowest number of listed companies since 2001, investors are now gearing up to fight back against the trend of declining listings and low valuations.
Just this morning, Winking Studios, a Singapore-based game development giant, announced plans to list on AIM.
“The lesson of the past few months has been that markets hate uncertainty. Now, finally, all the conjecture can give way to much-needed clarity,” said Eustace Santa Barbara, a fund manager at Marlborough Group.
“Looking ahead, we now expect the AIM market to perform well and the large discount that has developed in the face of uncertainty to narrow.”
Analysts also noted that with personal pensions now brought under the scope of inheritance tax, AIM stocks may be even more appealing for those looking to dodge the levy.
“This might not be the catalyst for a dramatic turnaround in investor sentiment on UK smaller companies, but we see it as a step in the right direction,” added Marlborough’s Santa Barbara.
“The most likely policy boost for this market was always going to be monetary rather than fiscal, and further rate cuts should deliver that in due course.”
However, James Ashton, chief exec of the Quoted Companies Alliance, argued that yesterday’s Budget was a “missed opportunity” to do more for smaller companies in the UK, stating that the move from Reeves “will do nothing to reverse the recent trend of outflows”.