Once a jewel in the crown, is AIM now losing its shine?

The Alternative Investment Market (AIM) is shrinking.

The FCA recently launched a consultation paper on the regulatory framework for the Private Intermittent Securities and Capital Exchange System (PISCES). PISCES is expected to be a new type of ‘regulation light’ trading platform that will facilitate the intermittent trading of existing shares in private companies. This should help liquidity for early-stage, sophisticated investors and others who hold shares in private businesses, notably employees. It will form a key part of the government’s strategy to reinvigorate capital markets through pro-innovation and pro-growth policies.

Although, this isn’t enough.

While any pro-growth strategy is to be welcomed, it has been countered by Chancellor Rachel Reeves’ October budget which has seriously undermined the UK’s junior quoted section – the Alternative Investment Market (AIM).

The listing requirements on AIM are less onerous and transaction costs are lower, enabling smaller, younger companies to list – ‘the acorns from which mighty oaks grow.’ There have been some real winners on AIM over the years and some of the largest businesses have been promoted into the UK’s major indices.

However, one of the drivers of AIM has been inheritance tax (IHT) relief. Rachel Reeve’s plan to cut this by 50% has undermined investor confidence in AIM.

IHT investors have been significant underwriters of new AIM issues and fundraisings over the years. With the flow of new IHT funds diminishing post-Budget, this has created an additional headwind. This has come on top of increased risk aversion, which tends to hit the smallest companies the hardest. AIM has also suffered from global asset allocators moving funds out of UK equities since Brexit.

Is one of the London Stock Exchange’s ‘jewels’ in the crown’ – AIM – now losing its shine?

New issue activity and fundraisings have dried up, although this has been a feature for some time. The number of companies listed on AIM has been progressively shrinking, down 40% over the last decade and by 20% over the last 5 years. Without help, this trend is likely to continue.

A number of the very smallest companies on AIM are now de-listing, with Hornby being the latest. At the other end of the scale, more of the very biggest AIM stocks are moving up to a full listing. Taken together, this is shrinking the size of the AIM pond. While PISCES is an interesting initiative, what a shame that the next step up the ladder, AIM, is creaking.

If the Chancellor wants to improve the foundations of UK economic growth, then she must do more to help UK smaller companies. The Bank of England also needs to cut interest rates. If the Chancellor is aiming for growth, then reviving AIM should be on her to-do list. In the meantime, depressed AIM valuations are likely to drive further takeover activity and private equity bid approaches.

 

What have we been watching?

 

Trump remains as unpredictable as ever ahead of what he calls ‘Liberation Day,’ the 2nd of April and the imposition of ‘reciprocal’ tariffs – whatever they are! Is it going to be more Trump rhetoric, or will Wednesday bring to a head the start of a global trade war?     

At the start of last week, markets began to hope that Trump’s tariff hikes might not be as bad as first feared and might be more targeted. The Wall Street Journal suggested that US Treasury Secretary Scott Bessent had drawn up a list of fifteen countries, ‘the dirty fifteen,’ which had run persistent trade imbalances with the US. These, it is believed, could be targeted by reciprocal tariffs. Countries that Trump has cited include Canada, Mexico, Japan, South Korea, India, China, as well as the EU. In addition, markets hoped that proposed sector tariffs in areas such as automotive and pharmaceuticals might be deferred.

Towards the end of last week, Trump then threw a curveball by announcing a 25% tariff on cars and car parts coming into the US from 2nd April. The US accounted for about half of the global car market and imported about 8 million cars in 2024 worth $240bn. Mexico is the leading supplier of cars to the US, followed by South Korea, Japan, Canada and Germany. For the UK, the US is the second largest export market after the EU, accounting for 18% of sales. Markets are now waiting to see how countries respond to Trump’s auto tariffs. Investors and central banks are also considering the inflationary impact of these later tariffs. Analysts estimate that the cost of a car made using components from Canada and Mexico could increase by between $4,000 and $10,000.  Elsewhere, Trump announced plans to double the tariff on Canadian softwood lumber to 27%, with the possibility of this rising to 50%.

Meanwhile, copper, which is seen as a key global economic barometer, broke through $10,000 per tonne on signs of improving demand from China but also due to tariff concerns as US businesses looked to stockpile.

Donald Trump said he is ‘very angry, pissed off’ with Putin over recent comments about Ukraine’s President Zelensky. Putin has called for a new transitional government in Ukraine. Trump has said he will put ‘secondary tariffs on oil, on all oil coming out of Russia’ if he thinks Moscow is to blame for failing to reach a ceasefire. At the same time, he criticised Zelensky for not agreeing to a mineral deal with the US.

 

In the UK, business activity surprised on the upside, hitting a six-month high in March. The ‘flash’ manufacturing PMI reading was 44.6, but the service sector jumped to 53.2. UK inflation undershot expectations in February with headline CPI at 2.8%, although services inflation remains sticky at 5%. Recent energy price movements suggest that peak inflation in the summer may not be as high as the Bank of England’s recent 3.7% forecast.

Despite the Chancellor Rachel Reeve’s welfare reforms, she will only meet her fiscal rule by the narrowest of margins, according to the OBR. In the nearer term, higher borrowing and disappointing tax receipts will cause the budget deficit to be bigger than the OBR predicted. The OBR cut its UK economic growth forecast from 2% to 1%, albeit outlying years have been increased, helped by growth in housebuilding. Disappointing real GDP growth or the Labour government being unable to stomach the welfare cutbacks could cause the fiscal forecast to deteriorate again. Adding to the uncertainty are Trump tariffs. The UK will be hit by steel and automotive tariffs, although Sir Keir Starmer is still hopeful of a US trade deal, while the pharmaceutical sector is also under tariff threat. Meanwhile, the Bank of England is grappling with persistent inflation. Given the UK tax burden is at a historic high, the government is pursuing a centre-right agenda of slimming down the state and cutting welfare spending. The awaited Spending Review is due to be delivered in June and defence spending is to be increased to 2.5% of GDP by 2027. In summary, Rachel Reeves has boxed herself into a corner. The Institute of Fiscal Studies (IFS) thinks it is ‘likely’ that she will have to raise taxes in the Autumn Budget. Indeed, the IFS has warned the UK may face ‘another blockbuster Autumn Budget.’ The 10-year Gilt yield remains the highest amongst developed nations at just under 4.8%.

 

In Europe, business activity picked up in March, reaching the highest level in seven months on the back of a recovery in manufacturing, particularly in Germany, where the government has now approved the €500bn infrastructure fund. The ‘flash’ Composite (Manufacturing and Services) PMI for the Eurozone was 50.4, and within this, German manufacturing recovered to 48.3 while French manufacturing improved to 48.9.

 

In the US, business activity expanded at a faster than expected rate in March, albeit some of the service sector pick-up reflected recovery following adverse weather conditions. The composite PMI reading was 53.5 and although manufacturing dipped to 49.8, the service sector rebounded to 54.3.

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Brent oil edged above $73 on higher US inventory drawdowns and Trump’s comments on possible secondary tariffs on Russian oil.

Finally, challenging times for many management teams given the uncertainty of Liberation Day and Trump tariffs. So, just one small example of action being taken by a UK engineering business, Smiths Group. It is planning to move the manufacture of its semiconductor testing facilities from Suzhou in China to Texas, USA. This will put it in a ‘good position to serve US customers and not attract the tariffs that are being added for China.’ Music to the ears of Trump, but not Xi Jinping!

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