London 2008: bucking global trends?

As it squirms under stifling heat from the media spotlight and ongoing credit shortages, what can London do to sustain its pre-eminence? Is the financial community sophisticated enough to adapt to the sub-prime fallout? Will new non-dom rules take their toll and are the financial markets sufficiently bullish to hold position while economic power shifts eastward? Nick Johnstone spoke to a wide range of key players in the City to find out what makes London tick and whether its finest hour has passed....

Which way for AIM?

The ‘London credibility factor’
London’s stock exchanges have undoubtedly become a hot topic for investors
worldwide, and it can be argued that AIM’s work in galvanising its home city’s profile is already ingrained. Today, London’s markets are so highly esteemed in comparison with their rivals that even the prospect of relatively unprofitable listings is making little difference to many companies.

Indeed, the global interest in AIM has been a good indicator of London’s position for a number of years now, and according to Geoffrey Hoodless at stockbrokers and corporate finance advisers Hoodless Brennan, the strong scent of AIM is still in the Far Eastern air. “I’ve been travelling in Malaysia and Hong Kong, for example, and all people could ask about was AIM, how to get a quote in London, and what the mechanisms were.

“AIM has been very successful in promoting itself, and the benefits of AIM are particularly attractive to many foreign companies,” he continued “It’s assisted in giving London a broad geographic reach, so if, for example, an Australian company has assets in Africa, it’s difficult to get any kind of rating in Australia. They would tend to come to London, which recognises Africa and Eastern Europe as attractive markets whereas many other centres are much more reticent.”

The wheat from the chaff
The drop in AIM listings, however, has signalled a potential realignment of this all important market, and opinion is divided as to the long-term impact. The City is already feeling the effects of rapidly falling profits from AIM-related work, and smaller end advisory firms are reporting significant drops in business.

One possibility is that AIM investors, rather than simply waiting out the credit problems, have generally become more discerning over investment, and no longer have the frenzied enthusiasm towards small cap listings that came to characterise the market over recent years. According to the FT, the IPOs that have come to market this year suggest that AIM is still attractive to overseas listings, but that market dynamics are pulling in higher cap companies of better quality.

It would appear, then, that AIM’s profile is in fact lifting, despite concerns over a lack of liquidity. Perhaps there is an opportunity for PLUS Markets to fill the gap left by AIM at the smaller end of the market.

Andrew Baker at Hoodless Brennan explained that PLUS is beginning to widen its scope as a formidable London market. “There have been a few issues on PLUS recently which have been unusually substantial for that market and would equate to small raisings on AIM,” he said. “Although PLUS Markets doesn’t seem to be attracting a huge number of listings at the moment, if the stock exchange and the FSA push regulations further, then we’ll see PLUS Markets come into its own as a new junior market.”

A setting sun for London?

Geoffrey Hoodless at Hoodless Brennan described the process as it currently appears. “There is no doubt that economic power will move away from the West towards India and China, and in fact it’s already doing it,” he said. “About a year ago I was in India and I was stunned by one thing – I was with a stockbroker who estimated that 30 million Indians are dealing on the Indian stock exchange.

“That’s half the population of the UK investing – when you’ve got that sort of involvement
and capital build up going on in China and India, there’s no question that economic power will go East.”

According to Mr. Hoodless, the trick now is for institutions like AIM to make themselves more
appetising to the great swathes of investment taking place overseas. “It’s actually very difficult for people in countries like Malaysia, India or China to trade on AIM,” he said. “If we’re going to grow AIM, it will be with overseas companies, so we have to improve AIM by creating a mechanism where local people can invest directly in a company from their locality.”

These extracts were taken from an article featured in Corporate UK, June 2008.  You can download the full article here.